How wealthtech became a US$14b industry

It’s the end of the month and you’ve just got your salary. You whip out your phone, open an app, press a few buttons, and that’s it – you’ve just put part of your paycheck into a number of investment products.

Investing wasn’t always this easy, but digital wealth platforms, which offer access to financial knowledge, advice, and solutions, have changed the game. Today, this simplicity has driven the wealthtech industry’s astounding growth.

The sector is seeing a huge boom especially in Asia. According to Statista, wealthtech firms in the region hold more than US$200 billion in assets under management as of 2021 – a roughly 5x increase from just four years ago.

“With people who are digital natives becoming wealthy for the first time, there’s also a need to invest,” says Gregory Van, CEO of digital wealth platform Endowus. “And that should be a necessity, so that you don’t have a decreasing quality of life in the future.”

Overtaking traditional investment channels

Traditional investment channels gave retail investors little access to institutional investment products and clean shares while at the same time charging high fees.

The arrival of wealthtech platforms changed that.

“High fees impact investment returns directly,” explains Van. “Broadly speaking, digital wealth platforms tend to offer lower fees as compared to offline platforms, such as banks and brokerage firms.”

Gregory Van, CEO of Endowus / Photo credit: Endowus

Endowus, for example, is a fee-only platform that charges an annual advisory fee that ranges from 0.05% to 0.6%, depending on the portfolio and funded amount. In contrast, brokerages usually charge a minimum commission fee of up to S$25 (US$18.20) per order, as well as a host of other possible fees such as custody fees.

Additionally, these platforms allow retail investors to access mutual funds of institutional share classes, which typically have low expense ratios and are reserved for institutional investors.

Rising interest

These innate advantages of wealthtech platforms have led to a steadily growing consumer interest, especially within Asia.

In 2021, Singapore-based Endowus reported an almost 1000% year-on-year increase in its number of clients, with client assets under management jumping 670% to reach S$1.5 billion (US$1.1 billion) by December. In Hong Kong, more than 10 wealthtech firms entered the market in 2019, making it the second-fastest growing fintech segment. That makes Hong Kong attractive for expansion, and Endowus is set to enter it by the second half of this year.

Besides their advantages over traditional financial institutions, digital wealth platforms also got a boost amid the pandemic as interest in newer investment channels skyrocketed, notes Van.

“Covid-19 brought about a heightened awareness of preparing for the future and not letting one’s savings sit idle. This led to a sharper take up of wanting to understand more about investing and actually starting to invest,” he says.

It also helps that regulators such as the Monetary Authority of Singapore have largely been welcoming to wealthtech firms, relaxing certain restrictions for license applications and providing guidelines for companies in the space.

And it’s not just consumer interest that has grown – VCs have gotten in on the expanding market. Last year, worldwide funding for wealthtech startups saw a 156% surge from the previous year to reach a total of US$14.6 billion from 486 deals.

With more funding, firms in the sector can focus on improving the consumer experiences on their platforms.

Endowus’ tech team / Photo credit: Endowus

“Today, a new client can complete the onboarding process and begin their first investment in mere minutes,” says Van.

Additionally, firms can launch new investment solutions to better meet a variety of demands and needs, as many options available currently look too similar, are too costly, and may not be in consumers’ best interests, according to Van.

Endowus, for instance, recently launched income portfolios in response to overwhelming client requests.

He continues: “Our portfolios are designed to benefit investors themselves, and not financial advisers, insurance companies, or banks.”

The truth of trailer fees

However, while rapid growth signals an exciting time for the industry, there are still some challenges to overcome. According to Van, one continuing issue is the distribution of trailer fees – the commission paid by fund managers to distributors such as banks, brokers, and fund platforms.

“This practice is unfair to clients because distributors are not aligned [with consumer interests] and ultimately, it eats into returns,” he continues. “Different funds may have different trailer fee arrangements, and the end customer doesn’t know how much of the management fee they pay goes to trailer fees.”

Photo credit: fizkes / 123RF

This leads to potential conflicts of interest as some distributors may be incentivized to recommend funds that pay higher trailer fees instead of looking at fund quality and an investor’s desired outcome.

To solve this problem, companies could consider rebating trailer fees to ensure zero conflict of interest. Consumers also stand to gain directly because it helps them reduce overall costs, drive up returns, and achieve a better investment experience.

“It’s education of consumers and showing them the money,” he adds. “It’s not just advertising, they’re actually getting a cashback in their Endowus accounts.”

Van hopes that such moves will be widely adopted within the industry and give regulators the confidence to disallow trailer fees as countries like Canada have already done so.

Honing in on consumers

Van believes that as the industry advances, the continued evolution of consumer interest toward digital wealth platforms will be “inevitable.”

“Who doesn’t want systematic expert advice, lower, fairer fees, and access to products?” he points out.

That said, companies will also have to play an active role in improving themselves, he advises. They should work better to understand clients’ needs and build more diversified, customized, and personally relevant portfolios instead of simply going with cookie-cutter products. Endowus, for example, was the first platform in the industry to fulfill a long-standing need of Singapore citizens and permanent residents: seamlessly and digitally investing central provident fund pension savings.

A deep focus on the client experience is crucial too, which firms can work on by focusing on both online and offline services to help give consumers of varying digital and investment skills more confidence to manage their wealth digitally.

“We’re here to relieve you and give you time and space to focus on things you can control, like your career, family, and friends,” he says. “To me, success in our industry is being able to do that by adopting an evidence-based investment approach. We’re definitely not creating another avenue for speculative activities.”

Currency converted from Singaporean dollar to US dollar: US$1 = S$1.36

Endowus is the first digital advisor for CPF, SRS, and cash savings, helping users invest holistically, conveniently, and with expert advice.

To find out more about its platform, visit its website.

This content was produced by Tech in Asia Studios, which connects brands with Asia’s tech community. Learn more about partnering with Tech in Asia Studios.