Technology in Wealth - Robo Advice Case Study


Technology in Wealth - Robo Advice

A high-level overview from YouDo Limited

Why do we need Robo advice?

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New Zealanders lack engagement in their wealth management or retirement savings plans. Research has uncovered Kiwisaver statistics showing that 55% of Kiwisaver investors remain in the default income funds, yet 79% of those same investors have over 10 years to go before retirement. This implies that most of those invested in Kiwisaver have not shifted out of their assigned default fund, and do not understand the implications of remaining in the default low risk income funds.  The Financial Market Authority (FMA) is very keen to address this and the have been active in expressing their desire to grant exemptions for Robo advice platforms.


Incumbents are slow moving...

Anecdotal evidence suggests there are many wealth managers and Authorised Financial Advisers (AFA) that pass up opportunities to service perceived low value customers due to their low initial funds to invest not being worth an individual’s time to serve. These entry level investors (with funds derived from employment windfalls or inheritances) therefore are driven to bank models, which are unsatisfactory from all perspectives. Many incumbent wealth managers and advisers have outdated modes of operation and expensive not fit for purpose legacy technology which will struggle to compete in this new world.



Kiwisaver funds are growing year on year, with participation up 4.4% as of March 2017, and funds under management (FUM) being NZ$45 billion as at September 2017 – up 6.5%.  With the increasing number of participants, growing FUM and increased use of technology, under 40’s want more control of their money and are looking for self service options rather than paying an adviser.  This represents a cultural change in younger generations and creates a gap in the market whereby a new wave of thinking and technology solutions are required to compete. 



A potential Robo advisory business utilising a lower cost technology platform to serve entry level investors will out compete the banking sector in the first instance and compliment independent AFA’s and wealth advisers, on boarding new clients in NZ’s cities and wealthier regions.


Total Addressable Market I - Customers

Using Statistics NZ data on wealth distribution in New Zealand alongside published data from the Kiwisaver scheme we can identify a Total Addressable Market of 416,000 people in the upper quartile of 2.6 million savers (2016) of these the top 2.5% (65,000) are likely to represent those with significant initial deposit funds and continuing saving capability.


Total Addressable Market II - Fees

The founder of a non-profit Kiwisaver provider Simplicity noted in the NBR in March 2017 that;

“Managed investment schemes are a $40 billion market,”

“We think the average management fee is about 1.6% in those funds, which means there is about $640 million taken out in fees."


Consumer Appetite

Examples of New Zealanders willing to invest significant sums without human advice.

  • Simplicity: 100% electronic sign up, little advice.
  • Harmony the P2P lending: in excess of $500 million lent in under 3 years, 60% of which is private investment, 100 % electronic sign-up, no advice.
  • Smart Shares: with around 2.1 billion in funds under management; electronic sign up, no advice



For the total addressable market, you have;

  1. A pool of accessible and experienced investors
  2. An untapped “unadvised market” of under 40's, made up of well-paid yet unable or unwilling to buy a house.  Known as Generation X and Millennials, they make up largest population in the world with Millennials set to have the largest financial muscles by 2020.
  3. Generation Z are entering the workforce now and are Digital Natives.  This means they are less likely to use traditional financial services and want more control over their finances.
  4. Older children of wealthy families with free cash yet unable to meet current advice deposit thresholds.
  5. Currently contribute to Kiwisaver yet have depth of savings capability beyond that.



To win in this market, you need to differentiate yourself from the competition with;

Accessibility: Users have a low initial investment and monthly top ups.

Price: Low fees enabled by technology and automation.

Philosophy: Low churn costs due to automated Passive investment (ETF) as well as Active investment driven by an adviser, whom can manage a large client base with the aid of technology.

Customer information: On demand information via email or login, versus current quarterly / semi-annual / annual reports.

Technology: Low human touch with high tech touch.  Accessibility from a mobile, laptop or tablet any time.  Personalised service is offered through learning and personalisation algorithms.

User Friendly: Provide investment information in plain English to appeal to everyday people.



Revenue Projections

Global models of Robo platforms charge at the lower end of the spectrum. The Australian models suggest charges of 50 basis points with ETF charges on top, which would see customers charged between 70 and 95 basis points of Funds Under Management (FUM).


Will this replace my Financial Advisers?

No.  The idea behind Robo advice platforms is to service the mass population, who may have anywhere from $5 to $250k which they wish to invest, yet are below a typical fund managers investment threshold. 

High net worth individuals will still be managed by your team of advisers/ fund managers.

Next Step

YouDo are experts in bespoke software development.  Backed by a strong industry knowledge in the financial sector in NZ, as well as wholesale trading, peer to peer lending platforms, dashboards, API’s and integration experience, we are an ideal partner for anyone looking to advance their brand and financial product offering.

Contact us today to find out how we can make your Robo ideas a reality.