StashAway banks $5.3m funding, but road to profitability for robo-advisors remains unclear

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Photo credit: jimbophotoart / 123RF

Over the past few years, Singapore has seen the birth of several fintech startups that are using automation and AI to replicate the role of human financial advisors, helping users to preserve and grow their wealth through passive investing.

With lower fees than banks and fund managers, these robo-advisors reckon they can make more money for their users than their offline competitors. But the more pressing question for them and their backers is, how can they can make money for themselves while operating with razor-thin margins?

One of this new crop of robo-advisors, StashAway, announced today that it has raised US$5.3 million in its series A round.

Most of the investors were not disclosed, though the startup said that a group of family offices – including that of former Temasek executive and Asia Capital & Advisors founder Francis Rozario – and one new investor participated in the round.

This latest capital injection brings StashAway’s total funding to date to US$8.4 million across three funding rounds.

StashAway co-founder and CEO Michele Ferrario – a former group CEO at ecommerce platform Zalora – told Tech in Asia that the fresh funding will be used to improve its service through further development of its AI tech.

The capital will also help StashAway launch in one new market in the Asia-Pacific region later this year.

Making money

Robo-advisors claim their competitive advantages over human-managed mutual funds (also known as unit trusts) and established automated investment options like exchange-traded funds is their substantially lower fees, and the ease of use they offer through mobile app or desktop-based interfaces.

With teams of human professionals making investment decisions for clients, mutual fund managers have high overheads compared to robo-advisors. They’ll typically charge fees worth 2 to 3 percent of the initial investment, according to Kenneth Lou, CEO at personal finance site Seedly.

In comparison, robo-advisors make investment decisions based on modeling and algorithms, allowing them to charge 0.5 to 1 percent fees.

Lou found that StashAway was generally the most costly robo-advisor in Singapore in terms of fees when he compared it to two competing startups, AutoWealth and Smartly.

However, StashAway claims to be the only one that requires a zero minimum balance from users.

“At the end of the day, consumers are making a decision on what is the best investment product, not on the fact that an annual fee is just a little bit lower or the interface looks nice,” said Ferrario. “With that said, no robo-advisor will win with just having lower fees, no lock-in period, or a low minimum balance.”