Why global wealth managers yearn for robo-advisors to build AUM

Without diminishing the role of organic growth, major wealth managers are increasingly overcoming regulatory hurdles and harnessing new technology to capture market share

 

Global wealth managers are increasingly relying on technology rather than organic growth to build up their assets under management (AUM).

This is not to say that organic growth has become less important. But in the race to grow their businesses and gather AUM, technology in the form of robo advisory platforms is slowly but surely becoming a preferred strategy because it is cheaper and faster than organic growth.

In recent weeks, reports indicated that the major wealth managers are working feverishly to launch their respective robo-advisors in a bid to expand their market share from the Ultra High Net Worth Investors (UNHWI) clients to the mass affluent or High Net Worth Investor (HNWI) segment.

HSBC, for example, recently announced it will soon be turning toward robo advisory to expand its wealth management business in the US beyond its branch network. The white-labelled robo-advisory platform, to be known as HSBC Wealth Track, is scheduled for launch in November 2019.

Goldman Sachs, which traditionally plays in the UHNW segment, is also building its capabilities to serve the HNWI market and is reportedly considering a robo advisory platform.

BlackRock, which acquired a platform known as "FutureAdvisor" in 2015, is expanding this capability overseas by partnering with a German robo-advisor to distribute iShares ETFs.

In Asia, Crossbridge Capital is also looking to expand its robo advisory business to Hong Kong, a platform known as "CONNECT by Crossbridge", which was initially launched in Singapore in late 2016.

Unlike HSBC, Goldman Sachs, and Blackrock, which all have strong investment banking or global banking parents, Crossbridge Capital is perhaps the closest to an independent global wealth manager that is currently operating in Asia.

The original team of Crossbridge Capital was actually the wealth management unit of Credit Suisse in London. On August 28 2008, the team was spun out into an independent business, with the participation of Julius Baer, who became a minority shareholder.

In an interview with The Asset, Tarek Khlat, co-founder and Group CEO Crossbridge Capital, says: "We launched 14 days before Lehman imploded. The environment back then was one where we felt by spinning out the business from Credit Suisse, we wanted to have a banking partner as a minority shareholder, not to get in the way of the independence by which we conduct the business, but more to give us a sign of recognition that somebody who was a premier name in the wealth management space was endorsing Crossbridge Capital as a start up."

Since then Crossbridge has grown its AUM to US$4.5 billion, representing 120 UHNWI families, with offices in London, Malta, Monaco, and Singapore, and a team of 37 investment professionals.

The challenge facing Crossbridge at present is how to sustain its growth momentum in an era of technological disruption for the wealth management and financial services business.

"Three years ago, we got into discussions about how technology was disrupting pretty much every industry and eventually was going to disrupt financial services in a meaningful way. And the reason it had taken so long was because we're a regulated industry and barriers to entry are far higher in such industries," Khlat says.

The result of those discussions was the launch of "CONNECT by Crossbridge" as well as CONNECT Prime in Singapore, which became the largest digital platforms in that market with over US$300 million in AUM on both platforms.

The most significant development is that Crossbridge now have two digital platforms under CONNECT with two different minimums and product offerings: CONNECT by Crossbridge (launched Nov 2016, targets accredited investors, minimum is US$1,500), and CONNECT Prime (launched this year, aims at private client segment, allows instant portfolio access, self-directed trading in some asset classes, expanded offering - minimum is SG$500,000). Combined they have US$300m AUM.

"CONNECT by Crossbridge has become the first pure-play robo-advisor in Singapore to integrate MyInfo, a digital data vault developed by the Government Technology Agency of Singapore to facilitate online transactions," says Charlie O'Flaherty, partner and head of digital strategy & distribution at Crossbridge Capital.

Developed in collaboration with Bambu, a robo-advisory solution provider, "CONNECT by Crossbridge" brings customized, actively managed, investment portfolios to accredited investors.

"Its goals-based investment portfolios give clients personalized asset allocation to suit their risk profile and objectives, and because Crossbridge Capital is a licensed wealth manager, clients can also speak to a human adviser at any stage of the investment process," says O'Flaherty.

More importantly, by launching its robo-advisory business, Crossbridge will be able to expand its universe of existing clients to the mass affluent segment and sustain its AUM growth.

Before the launch of the digital platforms, Crossbridge only offered bespoke wealth management solutions to UHNWI clients with an average portfolio size of US$30 million.

"The tech platform is completely different and that's the beauty of technology. Rather than servicing just clients with US$30 million, we're engaging with clients with much smaller wallet sizes. They can create their own investment profile, their own asset allocation, and then they will be allocated a specific portfolio using an algorithm. So, the technology has allowed us to democratize private banking to the US$50,000 level for CONNECT, but at the Crossbridge level it is much more bespoke and high end," Khlat says.

To support the "CONNECT" platform, Crossbridge has tied up with Morningstar, a global investment research firm, to provide advisory data and information. Pershing, a unit of BNY Mellon, will provide custody for the accounts.

"We are the ultimate manager of the portfolios but we get the advice from Morningstar and we establish the client accounts at BNY Mellon Pershing, the custodian. So by putting out those blue-chip providers or partners we think it goes a long way to establish trust with the client for a relatively unknown name like "CONNECT," Khlat says.