Unless you’ve been sitting under a rock (or you really aren’t into finance and fintech), you won’t have failed to notice big changes in Singapore’s policies.
As well as creating a sandbox for fintech companies to play in, the Monetary Authority of Singapore (MAS) has also made proposals to loosen the regulations around robo advisory services in Singapore.
The authority has released a public consultation paper which outlines the ways it will make giving digital advisory services easier.
Now that the dust has settled a little on the consultation document, the questions remain – is this a smart move by Singapore and MAS and what effect will it have on the market?
In a nutshell, the proposed relaxing of the regulations should make it easier for Digital Financial Advisors to get licenses in the little red dot and lower the barrier to entry for new players.
Measures being proposed include allowing existing funds to offer robo-advisory services, even if they don’t have a track record in that field, as long as they meet other regulatory criteria – including the type of assets and having key staff with experience in fund management and technology.
It will also allow digital advisory services to automatically execute transactions to “rebalance” a client portfolio without getting permission from the client first.
It’s these two steps which should help aid the growth of robo-advisories, which have been rising in popularity in the West but have yet to take off in any meaningful way in heavily regulated markets like Singapore.
For a retail investor, life could get a lot cheaper indeed. The key advantage of such digital advisory services is usually price.
With annual fees often half that of traditional brokers and fund managers, it should in theory, also open up a whole new market to smaller investors who are usually put off by the minimum sums needed to get into the game.
And that’s the point. While I’m sure MAS’ primary reason for this proposal is more related to staying at the forefront of fintech and being able to cement its position as an important financial and tech hub, the real world knock-ons are there to see.
Some of these robo-advisory start-ups offer services with investment sums in the low thousands and with monthly payments of $50, meaning they are potentially opening up a market to millions of people who never thought of investing themselves.
That goes double for the younger generations, who are digital natives and so not only baulk at the fees for financial advice but the very traditional way investment is done. They should – in theory – flock to platforms that are not only transparent but speak their language.
But it’s not all sunshine and roses. Make no mistake, MAS is going to have its work cut out to ensure people retain confidence in a system that has always had tight rules to ensure everything is fair.
Because the people who are most likely to be using the service is the type of person for whom investing is an unknown entity.
You can take away most of the high-net worth’s and existing investors, those really aren’t the type of people who will make or break the industry. No, the primary target of these start-ups is going to be retail investors.
And even before the gates are open there are almost a dozen DFA’s operating in Singapore. If the proposal goes through that number will surely rocket up in the coming 24 months as investment businesses look for new revenue streams.
The increased use of technology will also mean an increased threat to security, as semi-autonomous algorithms take the place of the human being in decision making, something that might make the common investor uncomfortable.
The proposal does contain requirements to counter-balance, including those about design, testing, security and audits.
But the key challenge of MAS (and the businesses that come here) will be to publicly instil confidence in financial technology, and for that they are going to need to seriously up the PR efforts in bringing the retail investors (the public) to the table to help them understand.
Can they do it? Yes. But the devil will always be in the detail, and this is just the start. Until more concrete proposals are laid out we just won’t know.
This proposal and consultation is simply a good start. It’s a balance between maintaining Singapore’s regulatory clout and loosening the reigns a little to allow real innovation to flourish.
The second, and possibly more crucial long-term issue is: Will it succeed in making people in Singapore invest their money in robo-advisories? Amongst a nation of people who have still to widely adopt digital wallets? That’s another question entirely.