Though robo-advisors are relatively new in China, they are rapidly rising in popularity, with now roughly 38% of adult Internet users using automated, algorithm-driven financial planning services, according to 2020 survey from Kagan, a research division within S&P Global Market Intelligence.
Interest is also high amongst non-users, with 68% expressing some level of interest in using robo-advisors, the study found.
The study, which surveyed 1,000 adult Internet users in China, found that users of robo-advisors tend to be younger, more educated and living in the city. 49% of robo-advisors users are aged below 39, 68% have a tertiary education, and 54% live in metropolitan areas with population of more than five million, the findings show.
Image: Robo-advisor users tend to be younger, Source: 2020 S&P Global Market Intelligence
Robo-advisor users also tend to have a higher monthly income, have a stronger eagerness to test new products, and are more likely to be early adopters of new technology (29%) compared to non-users (20%), the research found.
Image: Attitudes toward new technology, Source: Kagan 2020 Asia Consumer Insights survey
In the west, robo-advisor pioneers such as Betterment and Wealthfront have been in operation in the US since 2008. In China, robo-advisors only began emerging after 2015, with early movers that include Pintec Technology, China Merchants Bank, and CreditEase.
Image: Chinese banks, brokerages and fintechs launching robo-advisors post-2015, Source: 2020 S&P Global Market Intelligence
Favorable regulation
While in countries like the US and the UK, most robo-advisors are online discretionary investment management companies that make all investment decisions on behalf of their clients, robo-advisors from China are restricted by regulation and typically just offer portfolio recommendations.
But a recently launched pilot scheme is expected to shake things up by easing these restrictions, S&P Global Market Intelligence says.
In October 2019, the China Securities Regulatory Commission (CSRC) launched a pilot of a mutual funds advisory scheme that allows asset managers and fund distributors to provide customized investment advice and maintain discretionary control over clients’ investment portfolios, opening the door for more seamless user experiences.
With this new scheme, China is also shifting away from the traditional model where third-party channels generate revenue from transaction fees on the products they sell, to a fee-based advisory model.
And with fees capped at 5% of investors’ net asset values, license holders will turn to technology as a more cost-efficient and scalable solution to serving retail investors.
These factors, according to S&P Global Market Intelligence, are expected to contribute to the growth of robo-advisors in China.
Bigtechs joining in
As of January 2020, eight firms in China had been granted a license to conduct mutual fund investment advisors services, including bigtechs Ant Financial and Tencent, through its subsidiary Teng An Fund.
Ant Financial teamed up with Vanguard last year to launch Bang Ni Tou, a robo-advisory service accessible through Alipay. Rolled out in April 2020, Bang Ni Tou uses artificial intelligence (AI) to recommend mutual fund portfolios to customers with as little as 800 yuan to invest. In its first 100 days of operations, the service had drown in 2.2 billion yuan (US$318.18 million) from about 200,000 customers.
In August 2020, Tencent’s fund distribution unit Teng An Fund began offering selected investors investment advisory services. The service, called Yi Qi Tou, recommends mutual fund investments to retail buyers. Teng An Fund has teamed up with fund houses to create suitable investment advisory strategies.
According to a Reuters report, Beijing-based ByteDance, the owner of TikTok, is also taking steps to move into the online stock brokerage and wealth management business in Hong Kong.
