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A Digital Investment Management framework for Malaysia

Earlier this month, during the Securities Commission’s annual digital finance event, SCxSC, the regulator had announced the launch of Malaysia’s Digital Investment (DIM) framework. With the first digital investment manager slated to be licensed in the first half of 2018, conversations first started to revolve around and are now focusing upon robo advisors offering fund management services for the corporate segment and individuals.

SC’s framework specifically, is for an automated discretionary portfolio management type of service for the Malaysian capital markets.

But, what are robo advisors?

Robo advisories, or the use of robo technologies to provide advisory, in general address three major areas that traditional fund management services are lacking in. The first is that traditional fund managers will not necessarily give financial advice that benefits their customers, because selling a financial product is what they are aiming for instead.

The second area being addressed, is the DIY-ers who want to bypass these fund managers, but being amateurs, put themselves and their money, at more risk.

The third area, really is about empowerment through information. Robo advisory services can help potential customers address the lack of transparency that big financial institutions, tend to want to maintain, so that customers continue to rely on them.

Automated and discretionary

It is important to note, that the “discretionary” component of this framework refers to the human element of SC’s framework for DIM.

While there is automation of human processes, so that they become consistent and predictable, the final decision or recommendation ultimately lies with a human fund manager, to ensure that there is consistency with SC laws, and that the decision made is in the interest of the investor.

During an online seminar earlier this year, RakutenTrade CIO, Sekar Jaganathan, shared his views about the robo advisory landscape. “Robo advisory, the whole functionality of it, is for speed purposes. I think people need to look at the market in a very short time frame, and they need to know that sort of predictive analysis of the market has to be done at the fastest speed. Certified financial planners or CFPs, has to be combined with this.”

He added, “I think the CFP should talk about their knowledge of the market and that has to go into the robo, or in the computing power to ensure the robo advisory works well.

So, robo advisory is something that’s not going to go away. It must be there but CFPs would have a role to play as well.”

Sekar also foresees robo technology, moving from having a customer engagement role, to being more of a force behind an advisory and consultancy kind of role.

Folio, a Tokyo-based asset management fintech with robo advisory features, had received Series A funding from Rakuten Group’s fintech fund arm, earlier this year.

 

To know more about robo advisors, below is a video of a panel session last year, that gives it more context.

 

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