A robo alternative for savvy investors
By Sharmila Ganapathy October 17, 2019
- 43% of Malaysians’ gross assets are in cash
- Hong Kong, Australia and Indonesia are potential markets for expansion
IN MALAYSIA, there are very few investment avenues for the average man on the street who has little money to invest. Sure, there are the trusty old fixed deposit and unit trust options, however even these require upfront investments that many can’t afford.
Enter StashAway Malaysia, the local branch of the Singaporean robo advisor, whose key selling point is that it requires a minimal investment amount to start using its platform. The company invests mainly in US exchange traded funds and bonds, which is an affordable way for Malaysian investors to invest in a more global portfolio without paying high fees to banks or unit trust companies.
For the uninitiated, Investopedia defines a robo advisor as “digital platforms that provide automated, algorithm-driven financial planning services with little to no human supervision.”
Digital News Asia spoke to StashAway Malaysia country manager Wong Wai Ken recently about the company’s investment strategy, philosophy and future plans. Below is a summary of the interview:
DNA: How big is the market in Malaysia?
We think the market is huge. Let me just highlight how big some pockets of assets are. For example, Malaysians have a lot of cash. Forty-three percent of Malaysians’ gross assets are in cash. We don't think it's because they're too conservative. We just think that there's not a lot of great investment opportunities that are exciting out there.
Bursa Malaysia says that less than 5% of their CDS [central depository system] accounts belong to people under 35. So it just shows that the younger generation, are not keen to invest by themselves. Also, Bank Negara stats show that there's around RM670 billion in terms of retail cash. And the unit trust market is RM400 billion and the retail participation in the stock market is around RM300 billion. So all of these pockets of assets under management, are what we see as our market. Converting 1% or 2% of all these things into our addressable market, is what we are very excited about. I really think we've barely scratched the surface.
DNA: What was the initial demand like from Malaysian investors after you were awarded the license by the Securities Commission of Malaysia last year?
At the time, just as an indication of demand for a product like this, upon launch we had 5,000 users on the waitlist already. These were people who were tech and financially savvy enough to notice that in Singapore that we had already launched. So before we launched in end October there was chatter in LowYat.net and among Malaysians in Singapore who had already bought in, and there were some Malaysians who were opening accounts in Singapore. So once we launched here, we had a warm welcome and it was encouraging to see the initial numbers.
DNA: What were the demographics of potential investors from Malaysia at the time?
They were 33-35 years old, the majority of which comprised young professionals from the banking and tech industries and consulting. It’s quite natural that we got the mass affluent and upwardly mobile crowd because at the core of it, these people have investment goals and needs.
So they already had existing pain points out there including expensive existing services such as unit trusts and investment-linked products; so when something new came about and they understood our value proposition, they quickly adopted it. So within the first eight months of launching, these people were our early adopters.
DNA: How diverse has the investor crowd been since then?
It’s very interesting to see the current mix because different people are using StashAway in different ways. So beginner investors lot of them, SA might be their first platform. They understand that existing products are expensive and the barriers to entry can be high for fresh graduates or people with very low savings. We have no minimum investment and it makes it easy for beginner investors to try us out. And when we earn trust, it becomes part of their core portfolio.
As for high net worth individuals who have private bankers and are very savvy, they see us as a way to diversify their investment outside of Malaysia because of our global portfolios that are low-cost because we invest in ETFs. They also see our investment framework as a sophisticated platform. To different people, StashAway means different things. So we don’t see ourselves as just a low-cost platform, we’re sophisticated.
DNA: How easy has it been to onboard older investors?
That takes time, which is why we have multiple touch points for different customers. People in their 40s and above need to be convinced because they have to see someone in person which is why we do weekly events under SA Academy to educate and empower our users so that they can establish trust by seeing someone in person and refresh their knowledge of personal finance.
I can’t reveal the exact number, but our investor base in Malaysia is in the tens of thousands. We had gone through a correction in December and had a bit of a pull-back during the trade wars in May. Because we weathered those storms, we had people convinced because we didn’t crash as we had managed risks quite well. Once we did that that we’ve had referrals.
DNA: You recently raised US$11.8 million [RM49.4 million] in a Series B round led by Eight Roads Ventures. What will the funds be used for?
This support will enable us to continue bringing innovative financial products to market, and the funds raised will be used to enter additional markets in the region and accelerate investment product development. This round brings StashAway’s total funds raised to date to USD$20.4 million [RM85.4 million].
DNA: Your early challenges in Malaysia, were they similar to that of Singapore?
We were the first robo advisor in Singapore, an early challenge was the communication of our value proposition to investors. In this tech world, there are many buzzwords such as AI, machine learning, big data and in fintech you also have more jargon.
So for us, being a robo advisor which also introduces a new term, we try to focus on the value tech brings to customers. We had to communicate to potential investors the benefits of our platform and how to use it and the sophistication that comes with it, so people know how we can fit into their lives.
Initially change was slow, when it came to tech adoption, but when it is fast it accelerates. We’re perfectly positioned to capture the change, because we are defining the new investment market as we go along. I honestly think we’re doing what was akin to online broking in the early 90s. We are slowly replacing unit trust agents the same way online broking replaced remisiers.
DNA: What new products can investors look forward to in the near future?
For us, it’s about remaining close to the ground; we want to talk to our customers as often as we can. What we are also hearing is the need for Syariah products. So we are also trying to see whether it’s feasible to launch something like and construct portfolios that have the same value as the global ones.
DNA: What are your thoughts on fintechs partnering with banks?
We think banks should really think about partnerships, you know, partnerships with leading and good quality fintechs and also robo advisers to complement their existing services, not just from a product standpoint but from a positioning standpoint. By positioning, I mean maybe you want to think of robo advisors as your channel for millennials. So I think the more progressive banks will see partnerships and robo advisors as opportunities.
DNA: What are StashAway’s expansion plans like?
In the long term, we as a group want to expand to other Asia Pacific countries. And all that depends on how progressive those regulators are. So wherever we go, we want to be regulated at the local entity. We are constantly looking at opportunities in the APAC market because we want to position ourselves to rise along with Asian investors as they become more affluent.
I can see for example, where there are already other robo advisors. Australia already has a few, yes. Hong Kong and Singapore too. And then, it’s still early days, but we are seeing some robo advisors in Indonesia as well. All these markets are interesting to us for different reasons. The key thing here we look for is a wealth market. So if the wealth market is large and the regulatory environment is good, then we’ll study those opportunities, but it has to make sense for us strategically.
For more information on StashAway Malaysia, visit them online at: https://www.stashaway.my