When you first look into it, the global asset & wealth management industry is incomprehensibly large. In total there’s over US$100tn managed by the sharp suited moneymen and moneywomen around the world. That’s over 5 times the entire size of the US economy, and written out in full looks like this: US$100,000,000,000,000. In other words... it’s big! But what exactly is wealth management and just how relevant is it for the rest of us?
Wealth management vs. asset management
The role of wealth management is to optimise the overall process of building up wealth and deploying that wealth across time, and today wealth management is most often thought of as conducted by Private Banks for their high net worth clients. These Private Banks utilise third party products (i.e. investment funds from asset managers) which they incorporate into their wealth management services. And this product vs. service distinction is quite a useful one to keep in mind - wealth management is the service and asset management is the product.
In simple terms, wealth management involves doing 3 things:
1. Creating a plan, which incorporates both contributions and withdrawals
i.e. creating a specific investment plan that includes variations around contributions (e.g. monthly, annual or ad hoc contributions) and withdrawals (again on a monthly, annual or ad hoc basis). There can be any number of different contribution and withdrawal schedules, and all of these can be across different time periods
2. Populating the plan with investment products
i.e. populating this investment plan with appropriate investment products (with ‘appropriate’ being from both a financial point of view and also from a values and preferences point of view), and then managing all aspects of these investment products on an ongoing basis
3.Assessing and updating the plan
i.e. providing an assessment of the plan (e.g. an assessment of the likelihood of success in meeting the stated financial goals), and then maintaining the ability to make changes to the plan - and not just at the start, but at any point in time across the plan time period
And so we can see that wealth management really is about the two halves of both building up wealth and then understanding how best to deploy that wealth. It requires a huge amount of work to do this properly, and as such this is why the only wealth management business models that have developed so far have been tailored specifically to people who already have wealth; rich people are the only people who can afford to pay the high fees that are needed for all the hard work done when creating these bespoke wealth management services.
As such, the stats around wealth management engagement paint an unsurprising picture: BCG’s annual Wealth Report reveals that the average retail customer in Asia only has about 20% of their wealth invested in investment products, with 80% just sat as cash in their bank accounts. In contrast, High Net Worth individuals have the complete opposite, with only 20-30% sitting in cash and 70-80% invested into investment products.
Managing existing wealth is only half the story
However, being able to afford wealth management services is not the same thing as having a need for wealth management services. For example, rich people aren’t the only people who actually need to plan for future payments (the rest of us need pensions too...). And actually, the reverse is true when you consider wealth management’s first role in terms of building up wealth to begin with - rich people have no need for this aspect at all as they’re already rich!
In short, the rest of us have wealth management needs too. And this is so much more than just a technical nuance. For the first time in history, young people today are no longer better off than their parents were at the same age. And reflecting this same underlying issue: Since 1989 people under the age of 40 have seen their share of total wealth plummet from 19 percent to 9 percent.
Moreover, this issue is further exacerbated specifically in Asia by the role that governments have decided to play here. Over the second half of the twentieth century, Western nations created vast healthcare and social security systems which they still provide for their citizens today. The scale of these systems is reflected in their high levels of government spending as a proportion of overall GDP – which for the G7 countries on average is 43%.
In contrast to the West, governments in Asia have decided not to develop large welfare states, and instead provide limited government healthcare systems and social security. For example, government spending as a proportion of total GDP in Hong Kong is only 20%, in Singapore it is 14%, Thailand 22% and Malaysia 23%. There is no government back-stop for people living in Asia.
The emergence of wealthtech
Fortunately, wealthtech has the ability to fill this gap. Existing wealth management services have been limited to the rich simply because their operations have been manual and expensive. Through the use of scalable technology, wealthtech therefore has the ability to make wealth management services truly accessible to everyone. On this front, initial business models have started to make promising traction. In fact, online stockbrokers with zero commissions such as Robinhood have recently been widely criticised for making investment access too easy! Taking another example, assets under management for ‘Robo-advisors’ are projected to reach US$1.4tn by the end of 2021, which is an incredible feat after launching a little over 10 years ago.
However, whilst these stats are promising, the business models that they reflect are still very far from the holistic services that properly define wealth management, the services that people fully need in order to engage with the important process of wealth management. So far, wealthtech business models have essentially just sold products, they haven’t provided anything close to wealth management as an actual service.
For example, the investment products sold at online stockbrokers are just stocks. The products sold at an online Robo-advisor are prefabricated portfolios. Although these portfolios might well be much more sophisticated than a single stock, they’re still off-the-shelf ‘products’. In terms of wealth management services, the existing platforms and Robo-advisors available today are a million miles away from the capability needed to provide tailor-made wealth management services which are critically needed by the mass market segment across Asia. As such, overall engagement remains very low. Wealthtech is only 1% finished, at best.
Wealthtech 2.0 and beyond
And so this is where Teyk comes in. We’ve built the ultimate technology-driven investment platform with the capability to actually provide wealth management services. Teyk’s patent pending technology can create a plan, populate a plan and then assess and update a plan, and it can do this individually for each customer.
And going one better than the traditional wealth management providers - we are the world’s first investment platform with performance-only fees. Unlike traditional advisors, we only charge fees when our investment advice delivers positive returns.