Robo-advice will fail in China

By David Tuckwell on Tuesday 11 July 2017

Savings and Investment

CFA Institute issues pessimistics forecast for robo-advice in China

Fintech will succeed in China but not robo-advice, claims a new CFA Institute study. 

Fintech has hit Chinese finance like a clap of thunder and promises great change and disruption.

But robo-advice will sink in China’s rising fintech market as it depends on market conditions available only in developed countries, a new study by investment professionals group the CFA Institute has claimed.

“Many members of our organization and other industry professionals are somewhat concerned about how FinTech will affect their employers and their own career prospects,” the study said.

“[But] robo-advising is not likely to become profitable in the short run. Customers have not fully accepted the concept of asset allocation and robo-advisory service… Robo-advising, therefore, still has a long and tortuous way to go.”

Robo advice had much to offer, the report noted, as it is cheap to run and provides great customer service.

But robo-advisors need a strong ETF market to allocate assets and require widespread internet access – both of which are more available in developed countries than in China.

“The advantage of robo-advisers in the United States lies largely in that they reduce costs and avoid unnecessary expenses. In China, however, index-based investment does not cost significantly less,” due to high trading costs and a lack of ETFs.

The report also warned that competition from the BAT technology giants (Baidu, Alibaba and Tencent) is intense as they bring a “scale before profit” model that eliminates start-ups. It also said that the Chinese were culturally different and disliked paying commission to advisors.

“Robo-advisers require a 0.5% commission fee, and this is quite challenging for Chinese investors who have long been very reluctant to pay adviser commissions.”

Robo-advice might have a future in China, but that future will be in helping big companies to cut costs and improve their digital offerings.

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