Let the robo-adviser plan for you
Singapore-based Stashaway sets up investment advisory platform
STASHAWAY, a Singapore-based investment advisory platform or more famously referred to as a robo-advisor, has received the greenlight to offer its service in Malaysia.
Last week, the firm received a capital markets services licence from the Securities Commission (SC) and will carry out portfolio management activities under the Digital Investment Management framework.
One of the co-founders of Stashaway is Michele Ferrario, who was formerly the group chief executive officer of Zalora, SouthEast Asia’s fashion e-commerce platform. Prior to his four years stint with Zalora, Michele founded the Italian and Pakistani operations of Rocket Internet.
Michele says 43% of gross financial assets in Malaysia are in bank deposits, which indicate that there is a gap in the financial services industry.
“It’s clear that current investment options aren’t doing their jobs of enabling Malaysians to build their long-term wealth through intelligent investing.
This huge amount of wealth sitting in cash proves that the financial services industry has failed thus far to equip Malaysians with the right investment tools,” he says.
Stashaway is the first, and currently the only, robo-advisory platform to obtain a licence from the SC to operate in Malaysia and had already garnered more than 5,000 people on the waiting list prior to the launch, says StashAway Malaysia country manager Wong Wai Ken.
He says the main aim of Stashaway is not only to make investing easier for the masses, but also to provide secure and affordable offerings to customers who are looking for simpler ways to invest their savings for the medium to long-term and meet their financial goals.
With more than 10 years of experience as an investment banker, Wong was formerly attached to Khazanah’s investment team and subsequently investment banking firm Affin Hwang Capital. He subsequently made the leap to the fintech industry.
Below are excerpt of Wong’s interview with StarBizWeek:
How does the StashAway platform work?
StashAway makes it easy for customers to grow and protect their wealth in the long term regardless of how much they choose to invest. Customers can simply open an account online or through the App in 15 minutes.
Through our digital interface, investor first selects their life goal such as planning for one’s retirement or buying a home. StashAway would then generate a portfolio to reflect investor’s risk preferences, and investment plan which estimates how much they would need to set aside to achieve their goals. Investors are also allowed to set up multiple portfolios for different investment goals.
Under the StashAway’s investment framework, we will allocate investors’ savings into exchange-traded funds (ETFs) which give investors a diversified portfolio with global exposure. The proprietary investment framework used to manage the portfolios takes an intelligent risk-management approach: it determines a portfolio’s asset allocation by continuously factoring in macroeconomic data, abnormal market behaviour, and asset-class valuation gaps.
What licences, credentials or other certifications do you have?
StashAway Malaysia is regulated by the SC. We have recently obtained the capital markets services licence to carry our portfolio management activities under the Digital Investment Management framework. StashAway is also licensed in Singapore, where we hold a capital markets services licence for retail fund management.
What is the main goal of the platform?
StashAway’s goal is to become the most customer-centric digital wealth manager in the region. The company was founded with the mission to empower people to build their wealth for the long term; we want to redefine how people think about and manage their personal finances, helping as many people as possible find financial peace of mind.
Who are your target clients? The platform was designed to cater for people of all net-worth and investment objectives to invest their money. Many sophisticated investment products were traditionally not been available to everyone. StashAway provides its advanced investment framework to unaccredited investors while simultaneously providing the sophistication that accredited investors expect, at a fraction of the cost. However, the segment we focus our efforts towards is working professionals. StashAway’s convenience and accessibility eliminate the time these professionals would traditionally need to spend researching and managing their investments.
What kind of services do you provide on the platform?
StashAway’s main services are financial advisory and fund management. For the first, we recommend one or more portfolios tailored to each investor’s life goals, financial situation, and risk preferences. For another, StashAway builds the portfolios and manages their investments for medium to long-term period.
What asset allocation frameworks will you use?
StashAway uses ERAA, a proprietary asset allocation framework designed to manage portfolios’ risks and optimizing returns across economic and market cycles.
ERAA stands for Economic Regime-based Asset Allocation, as economic data (e.g. growth and inflation) ultimately drive medium-term asset-class performance, and are therefore used by StashAway to optimise portfolios over time. During a recession, you want less equity exposure and more bonds and gold!
ERAA also features a Risk Shield, that gets activated when markets are not in sync with the economy, and a valuation adjustment pillar, that ensures that portfolios avoid investing in overvalued assets and captures opportunities in undervalued assets.
What investment benchmarks do you use?
StashAway uses risk-based benchmarking, which combines different proportions of equity and bond indices to match the risk profile of our portfolios.
In other words, each of the 31 different portfolios currently offered by StashAway would be benchmarked against a combination of the MSCI World Equity Index and FTSE World Government Bond Index.
All of our portfolios are measured by the StashAway Risk Index, which we use to determine how much risk our system should be expose to, which then determines our investor portfolio’s asset allocation.
StashAway Risk Index is a specific application of value-at-risk (VaR), a commonly used risk metric. When a portfolio has 99%-VaR, it can be interpreted that the portfolio has a 99% probability of not losing more than a given percentage of assets in a year. For example, a RM100,000 portfolio with a StashAway Risk Index of 20% has a 99% probability of not losing more than 20%, or RM20,000 in any given year.
Using this example, the riskbased benchmark for a portfolio with a Stashaway Risk Index of 20% would be 55.5% of MSCI World Equity Index and 44.5% FTSE World Government Bond Index.
What is the minimum investment amount and what is the average investment size per client?
There is no minimum amount to invest. The average investment per client is growing, as the personalised financial plans encourage regular monthly investing. Although we don’t disclose asset under management (AUM), we can share 30% of our AUM comes from Higher Net Worth Individuals.
How much are your fees and how different are you from traditional fund managers?
StashAway firmly believes that a sophisticated investment product should not come with high fees. Investors only pays StashAway a management fee of 0.2%-0.8% p.a., with no sales charges. Other associated costs such as ETF fees and currency conversion are kept to a minimum. These lower fees result from a combination of our intelligent asset allocation strategy, the application of fractional shares, and cost-efficient ETFs.
You can compare these fees to traditional fund manager fees, who typically impose 3%-5% in sales charges and 1.5%-2% in management fees and typically churn clients across products every couple of years for a total average annual fee of 3%-5%. With StashAway, clients save 2.5%-4.5% in fees, which go straight to returns. A 2% save in fees over 30 years increase capital by approximately 50%. Fees matter!
How is technology reshaping the role of fund managers?
Technology can help fund managers provide better investment services at lower cost, by automating costly repetitive processes and helping fund managers focus on what matters: asset allocation.
Traditional fund managers rely on sizeable workforces and manu- al processes that can prove to be costly and inefficient for investors.
In the retail segment, fund managers rely on sales agents to distribute funds in exchange for a sales charge to incentivise performance. This naturally leads agents to focus on chasing sales targets, leaving investors with products that are not tailored to their needs and a service level that is sub-par.
By harnessing technology, StashAway’s investors are empowered to take their financial future into their own hands to attain a portfolio that matches their investment goals and risk preferences simply by logging into our platform on your desktop or mobile. Without the hassle of making an appointment or filling in forms, clients are able to customise a portfolio within a matter of minutes and monitor their portfolio anytime, anywhere, without seeing their returns eroded by sales charges
How can fund managers remain relevant in the face of technological disruption?
Fund managers should first start looking at their cost structures, on how much their customers pay for their products, transparency and how investors catching on to alternatives that offer lower entry costs.
While it may take time for consumer behaviour to adapt to change, once it passes a tipping point, it can happen fast.
Take ride-hailing and e-commerce as an example for how digital startups have improved customers’ experiences by introducing convenience and lower transaction costs.
Incumbent financial institutions will be monitoring this space as agile digital alternatives with technology resources gain a foothold. Incumbent fund managers should challenge their way of doing things to adapt and change quickly.