Embracing automation

Category: Asia, China, Hong Kong, Taiwan
By Hui Ching-hoo

Taiwan regulator standardises practices for robo-advisory services

Robo-advisory services have become more widespread in Taiwan’s asset management industry in recent years as the Taiwanese government has identified financial technology (fintech) as a focal point for the island’s economy.

That said, the market for robo-advisers has yet to take shape in the absence of standardised practices and infrastructure.

Robo-advisers are digital platforms that provide automated, algorithm-driven financial planning services with little human supervision.

Two years ago, Taiwan’s Financial Supervisory Commission (FSC) established a Fintech Office to facilitate development of the industry with the aim to promote robo-advisers in the local financial industry.

But according to Ryan Lee, deputy leader of Taiwan financial services at PricewaterhouseCoopers (PwC), the major dilemma for the industry is that the scope for robo-advisory businesses has not been clearly defined by financial authorities.

He says the Fintech Office does not play an active role in outlining fintech-related initiatives for financial entities such as fund managers or securities houses.

“The Fintech Office only provides support for financial institutions when they run into any difficulties in the course of starting up a fintech business,” Mr. Lee says in an interview with Asia Asset Management (AAM).

This June, the FSC issued a set of guidelines to the Securities Investment Trust & Consulting Association (SITCA), which represents Taiwan’s fund industry, on the adoption of robo-advisory services.

Among other things, the guidelines state that local investment consultants and fund managers should refer to overseas examples, such as the digital investment advice report by the US Financial Industry Regulatory Authority, when developing their robo-advisory services.

The regulatory watchdog also emphasises “know your customer” (KYC), urging fund managers to carry out online assessments of customers to have a better understanding about their risk tolerance and investment experience.

Last month, the FSC allowed local banks to provide one-stop, robo-advisory services, including taking investment orders from clients and providing investment suggestions.

According to Mr. Lee, the guidelines are a big step towards regularising the operation of robo-advisory services.

“The guidelines help to standardise the operational practices. In short, fund managers are allowed to provide all-round robo-advisory services to their clients as long as they’ve reached an agreement with their customers over the service content,” he says.

“From the financial institution perspective, the robo-advisory business is multifaceted. Fundamentally, they can utilise “chatbot” to provide financial advisory services to replace face-to-face meetings. This service is less capital intensive and its entry barrier is relatively low,” he adds.

Mr. Lee says some market players are looking into using algorithm-driven financial planning services, where robo-advisers use algorithms to work out customised portfolios for clients, based on their risk exposure and financial status.

“In comparison to “chatbot”, it will be more difficult for asset managers to start up algorithm services as it requires considerable investments in databases and infrastructures. However, it won’t be a hurdle for resource-rich companies,” Mr. Lee says.

According to Kurtis Wang, a marketing executive at Tarobo Investment Advisors (Tarobo), the robo-advisory industry is very resource and capital intensive.

Earlier this year, Tarobo became the first independent research and consultancy company to receive a robo-advisory licence from the FSC. The company mainly conducts due diligence, rating, and analytical services for local mutual fund products.

“The industry landscape is very challenging,” Mr. Wang says, though he points out that Tarobo has an advantage over its competitors thanks to investment by a US private equity manager with “considerable experience”.

He says the investor – whom he declines to identify – invests about NT$10 million (US$329,204) every year to develop “a comprehensive database system”.

He says Tarobo is looking to work with local banks and insurance companies to provide value-added services for their fund distribution platforms. However, such partnerships are a new concept in Taiwan, and it will take some time for the company’s business to break even, he adds.

Although Taiwanese fund managers have started to adopt fintech, the industry faces major challenges, especially in broadening its scope from retail investors to institutional investors, according to Mr. Lee.

“The existing fintech platform in Taiwan is individually-operated and retail-focused. If they need to promote the services to the institutional level, market practitioners have to work together to build the infrastructure,” Mr. Lee says.

“However, it won’t be easy for them to reach a common ground from an interest and cost stand-point. In this sense, it’s better for the government to play as a market maker to develop the eco-system,” he adds.