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Future tech

What’s your risk appetite? Your robo-adviser has the answer

Robo-advisory in China is expected to grow, but the development of robo-investment platforms are not without challenges

PUBLISHED : Wednesday, 12 July, 2017, 7:32pm
UPDATED : Wednesday, 12 July, 2017, 10:59pm

China is quickly embracing robo-advisers which provide investment tips over the traditional investment advisers, on grounds that algorithms driven by big data analysis provide better money-making advice than the humans.

The wealth management industry has been transitioning its focus on mere product sales to higher value-added service-based offerings over the past few years, a result of the segmentation of different products and their underlying volatility based on financial advisers’ feedback of what investors want, according to Barry Freeman, co-founder of the Chinese financial technology startup Pintec Group.

He said Xuanji, a robo-adviser platform launched by Pintec last year, was able to make suggestions on asset allocation in a full portfolio of mutual funds based on investment target and risk tolerance levels derived from a set of questions answered by the investors, powered by big data, quantitative modelling and machine learning.

As the robo-advisory platform owns data of 80 per cent of mutual funds in China through partnership with all the fund houses, algorithms based on the data and performances of different funds will be able to segment different opportunities, making it a better performer compared with a human stock broker, Freeman said.

“It is not whether a human or a robot is making the allocation, it is whether the investors embrace the concept of a diversified portfolio. And we have a very compelling case that using the data to analyse different products in the long run will be able to uncover more opportunities because of the data capability,” Freeman told the South China Morning Post on the sideline of the Rise conference on Wednesday.

It is not whether a human or a robot is making the allocation, it is whether the investors embrace the concept of a diversified portfolio
Barry Freeman, Pintec Group

Robo-advisory service is a hot but relatively new concept in China as assets under management by robo-advisers in the mainland only amount to US$27 billion in 2017, about 15 per cent of the amount for the US, according to market research firm Statista.

The research firm nevertheless predicts a wider and faster deployment of this advanced technology, estimating that the size of assets under robo-investment management in China will expand at a compounded annual growth rate of 103.8 per cent in the following five years to reach US$467 billion in 2021, when the number of users is expected to hit 79.4 million.

Pintec, which focuses on providing technology to business groups, has successfully partnered with a number of key financial and non-financial institutions, including Minsheng Securities, Anbang Finance and Harbin Bank, in the deployment of Xuanji as a robo-backed financial advisory service.

But Freeman admitted that the development of robo-advisory platforms in China faces several issues including the limitations surrounding the business licence, capital transfer, and how to optimise the artificial intelligence-based portfolio.

User acceptability is another issue, as robo-investment results, based on historic data, tend to offer recommendations for the long term, contrary to the short-term gains that most Chinese individual investors look for.

According to a survey report released by Shenzhen Stock Exchange in March, only 21 per cent of Chinese investors were set on long-term gains when trading stocks in China.