The View | Robo-advisers face cultural barrier in China

The "internet of things" is supposed to liberate us through customised and individualised lifestyle experiences, but in some cases it will have trouble crossing cultures. The combination of big data analytics, new distribution channels and mobile technology has allowed technology start-ups to disrupt traditional banks. Innovations are already rippling through the consumer lending and payment transaction spaces. And now the latest incarnation arrives as automated investing using "robo-advisers" - where evolving technology has made it possible to automate the entire investment process. Investors may no longer need human advisers to plan their portfolios. Sophisticated algorithms create and manage portfolios based on information supplied by investors. A new generation is fuelling its growth in the United States, but despite the proliferation of mobile technology in Hong Kong and mainland China, an appalling lack of social trust and - most of all, trust in financial advisers - is an insurmountable obstacle for the success of robo-advisers and the mutual funds that are behind them. Recent results from the "Study of emerging affluent investors in urban China" by US brokerage Charles Schwab were startling: only 12 per cent of investors use the services of a financial adviser. Instead they base their investment decisions on their own research or opinions from friends and family. A report by Natixis Global Asset Management last year found the global average of investors using a financial adviser was 64 per cent, and in the US the number was even greater at 67 per cent. The Schwab report found Chinese investors were reluctant to use professional advisers and brokers because they simply did not trust them. Just over a third did not trust the capabilities or recommendations from a financial adviser or broker, while a fifth said the fees were too high and a fifth also said they did not know anybody who used a financial adviser. This low level of familiarity and education is understandable given mainland China's relatively early experience with asset management. That Hong Kong only demonstrates a 12 per cent penetration for mutual funds is surprising since asset managers have marketed themselves heavily in the city for decades. Changing demographics over time have been impervious to cultural character. Cultural attitudes rather than the available technology define how individuals relate to the role of money in their lives and how they invest. Despite being more advanced, Hong Kong Chinese are blinded by a form of debilitating and absolute distrust that disproportionately increases with the amount of wealth. Whether it is a business deal or investment proposition, the first concern of the Hong Kong Chinese person is whether the counterparty is trying to cheat them. The concern extends beyond counterparty risk; rather, the judgmental starting point is the assumption of malevolence. Then those who actually seek financial advisory services demand the kind of personal service that Asians are used to rather than impersonal, online user interfaces. Such a viewpoint explains why local Chinese, compared to other cultures, are enormously dependent on advice from and partnerships with family members, relatives and loyal employees regardless of their investment competency. Even as far back as the 1980s and 1990s, Li Ka-shing used to appoint his trusted secretary or personal assistant to manage part of his portfolio. For many Chinese, personal trust and loyalty are always more important than professional qualifications. The aversion to paying for professional advice is so stubborn that some of the richest people in Hong Kong maintain financial advisory relationships based only on success fees or commissions. However, automated investing is emerging because the current generation of Americans has a very different set of expectations about investment services. According to a recent Goldman Sachs report, "The future of finance", the so-called "millennial generation" in the US has less trust in wealth advisers and the philosophy of active investments compared to earlier generations. They also trust their social network for personal investing advice, creating an opportunity for platforms to move personal investing from a purely individual activity today to a more open and engaging social activity. Millennials' values are driving these personal investing trends: passive investing, automation, online and mobile-first platforms and transparent fees. Only 30 per cent of millennials say they would conduct personal banking or payment transactions at a traditional bank. Chinese, however, prefer to trade individual stocks and deal at traditional banks. How all of these trends will dynamically unfold and unravel in Asia will depend on how the participants - shadow tech banks which have now come out of the shadows - bridge the considerable trust gap. Peter Guy is a financial writer and former international banker

.css-1m2rp1p{color:#34b8b5;}The View | Robo-advisers face cultural barrier in China

The View | Robo-advisers face cultural barrier in China