By 2022 robo-advisors will manage US$177 million in South African assets, up from only US$22 million this year, data by Statista shows.
This translates into a compound annual growth rate between 2018 and 2022 of 68.8%. Compare this to other industries like digital payments and alternative financing that are only expected to grow by 12.2% and 14.3%, respectively, and it becomes clear that the growth of robo-advisors in SA will be significant.
This is not unexpected, in fact, South Africa has some catching up to do. In the US assets under management by robo-advisors already amount to US$266,190 million.
Why all the hype?
There are many good reasons why South African firms have already embraced robo-advisors and will continue doing so in future.
The main benefit of this new way of financial management is that it appeals to millennials. These digital natives are used to Netflix telling them what to watch next and finding a ride through Uber. So trusting a robot on where to put their money is not a big leap. In fact, for many this is the most convenient way to invest. They can choose how much to save and the technology will do the rest. In some cases, they can even manage their investments through an app. And what millennial doesn’t love a good app!
Another significant drawcard for robo-advisors is that their services generally cost less than traditional financial advice – the average investor pays at least 3% in investment fees, whereas robo-advisors generally charge less than 1% – so there is the potential to save a lot.
Some robo-advisors also cater for smaller investment amounts (as little as R100 a month). Combined with lower fees, this opens up investment opportunities to those who were previously unable to afford it.
A worthy investment
There is no doubt that technology is the way of the future, and wealth management firms have long since realized that, to remain relevant in the long-term they need to embrace innovation.
As such many investment firms have created their own robo-advisor platforms, where investors can build their own investment portfolios, based on their individual needs, with the help of technology. No phone calls, or awkward face-to-face meetings needed.
Companies that have already set up robo-advisor (often called online investment) platforms include Sanlam, Sygnia, Absa and Anchor Capital. Insurance provider OUTsurance is also active in the space.
With interactive, easy to use web-platforms, these firms are attracting millennials and even older investors that would like more insight into and control over their investments.
Prominent South African robo-advisors
Some of the most prominent South African robo-advisor platforms include:
Launched by JSE-listed Sygnia in 2016 this platform offers exchange-traded funds (ETFs), money market funds and cash. The RoboAdvisor will help investors design their investment strategy, after which their portfolios will be managed by a team of experts at Sygnia.
The Sygnia online tool mirrors more traditional investment advice in that it asks for personal information up front. It then uses this information to show the investor’s expected financial future if no changes are made. With this information in hand the potential investor can then adjust their strategy and savings goals until they’re satisfied, after which Sygnia will build a proposed investment portfolio.
Similar to other local robo-advisor platforms Sanlam Smart Invest helps investors find the ‘right combination of funds’ based on their individual goals and contribution levels.
This platform asks investors what they would like to save for and how much money they would like to have in future. It then works out how much has to be contributed each month and recommends funds that could be good options to invest in. Should the user wish to go forward at this point, they’re required to create an account.
A member of the OUTsurance Holdings Group, the platform allows investors to invest in five unique low-cost funds created by OUTvest to meet various investment needs. The platform also has its own app where investors can start, stop and change their contributions at any time.
Users answer a series of online questions after which one of the five funds are recommended.
Backed by Anchor Capital, Bizbank enables investors to invest in funds, ETFs and individual shares.
Investors are taken through an online calculator process that asks questions about financial goals and attitude towards risk, after which an investment portfolio is recommended.
Absa’s platform asks users questions about their investment experience and knowledge, risk profile and goals. Once completed, have access to a preselected range of Absa’s unit trusts with more investment products still to be added.
The robots aren’t taking over… yet
Despite the significant investment in robo-advisors by some of the biggest players in the industry, traditional fund managers aren’t going anywhere anytime soon.
Many South Africans still aren’t ready to trust a robot with their money, just as they’re not quite ready to trust a car to drive itself, and they likely also wouldn’t trust Siri make online purchases on their behalf.
So for the time being, robo-advisors will continue to operate alongside traditional financial advisors – the technology will build an investor’s profile but a human fund manager will still be responsible for the day-to-day portfolio management.
The robots aren’t taking over, but they’re certainly gaining ground, who knows in ten years Siri might be a full-blown fund manager.
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- South African Robo-Advisors: Hype or Worthy Investment? - June 13, 2018