The popularity of robo-advisors has been rising steadily, putting a spin on traditional means of investing and providing a specially curated experience for each customer. You might be wondering, “What actually is a robo-advisor?” FLY journalists Xiao Xuan and Andi had a chance to interview Kenanga Group’s Chief Digital Officer, Ian Lyod, to bring to you insight on the dynamics of incorporating artificial intelligence and machine learning in the process of investment decision-making.
Prior to joining Kenanga, Ian had worked with many large investment banks in Europe, the United Kingdom and Malaysia. He was also a freelance consultant for Kenanga before joining them as an official employee. Ian has dedicated his journey in the field of personal finance and banking towards making investing approachable for everyone.
Robo Advisory and Kenanga
“Think of a robo-advisor as the traditional human financial advisor, but simpler, automated and easy to access. It’s available for everyone, you don’t have to make any appointments, and it provides help to you at any time of the day.”
Ian replied when posed with the question of how he would define robo-advisors in his own words. In more definite terms, a robo-advisor is a digital platform that provides automated investing services driven by algorithms. He described the benefits of human financial services, particularly how portfolio managers can offer a wide range of instruments and personalised consultations for their customers. Despite this customer centric element being an appeal, these services are prone to speculation and human error. Hence, this is where robo-advisors can address the gap. They remove the elements of emotion and biases in investment decisions that arise from human nature by taking a data-driven approach to decision-making. All while taking into account an investor’s risk tolerance and personal financial goals.
Ian commented on how Kenanga as an independent investment bank is offering exemplary financial services based on its strong history and expertise in wealth management. Their entry into the field of robo-advisory was fueled by the vision of simplifying the investment process and making the market more inclusive, especially for total beginners who tend to be more risk-averse and unsure of where to begin. He emphasised on the importance of investing and personal financial planning as a means for people to maximise the utility of their earnings and savings.
“You can either have a packet of nasi lemak for breakfast or if you’re not particularly hungry, you can choose to save the money and try to make some interest off it.” He said with a chuckle as he put forth this metaphor.
Addressing Scepticism Towards Robo-Advisory
When presented with the question of whether robots may potentially replace human financial services and displace jobs, Ian stressed that robo-advisors at Kenanga still require a great deal of human regulation. Portfolio managers monitor their robo-advisors through back-end settings and regularly modulate them to reduce risk for customers, cater to larger markets and explore more financial instruments. While robo-advisors are good at analysing data and conducting repetitive work, they still need a human to teach them what to do when it comes to entirely new tasks. More importantly, robo-advisors allow human portfolio managers to take time off mundane work and focus their efforts towards exploring new areas in financial services, where more critical thinking and innovation is required.
In regards to scepticism towards potential risks of using robo-advisors, he stressed that a common mistake that most existing robo-advisors make is getting caught up in making big gains while disregarding the possibility of big losses. He then elaborated on how Kenanga aims to mitigate these risks by programming their robo-advisors to make smaller but steady increments and enjoy the benefits of compounded growth.
“Better to have a steady series of small gains rather than have a big win and incur massive losses later.”
KDI Invest & KDI Save
Kenanga launched KDI into two phases; KDI Save & KDI Invest. Ian described KDI Save as a fixed deposit without the “fixed” part or a high-yield savings account. Firstly, the customer deposits their money in and the funds can usually be withdrawn by the end of the day or the day after. If you put your money in, you can see an accrued interest to payments every single day and this money can be withdrawn at any time.
“Like a little piggy bank; put your money in, let it sit there and watch it grow. You can take it out anytime you want.”
Similarly, KDI Invest is used for longer term investments, where a robo-advisor invests in a basket of assets depending on the customer’s risk preferences. KDI Invest gives a different perspective as it focuses on a much longer return of about a year or more. Ian describes the steps to using the app as follows:
“You put your money in and see in a couple of days, the app will invest for you and you will see returns on it. The money can be withdrawn at any time but a slower process as the investment has to be sold in order to give back the money”.
When asked on the inspiration behind KDI, Ian mentioned that robo-advisor firms, of which are mostly startups, have some background but not the resources and experience that Kenanga does.
“We took our knowledge, experiences and learnings which led us to creating a ‘mini robo-advisor’. What we plan to do is we continue to add more types of advisors if you will”
He also stated that there is a big trend in ESG-purpose investments and investments that matter such as healthcare, technology or aerospace, leading to Kenanga’s plan to potentially add these types of investments as well as a new advisor.
KDI & Growing The Malaysians’ Wealth
From a regional perspective, Ian found that customers across Malaysia who are well-off can afford to consult a human investment advisor. However, the average population who are not as wealthy are generally either too intimidated or clueless when talking to an advisor. Thus, they end up investing in fixed deposits and make not nearly as much money.
“Our goal is to make it so that anyone can start investing or saving. It would not matter where you are as long as you have a phone and you have a bank account”
When prompted for the distinction between KDI and other robo-advisory platforms prevalent in Malaysia, Ian stated that the main difference lies in the robo-advisory itself. Although other competitors operate the same way; where one deposits their money, answers a couple questions, and the robo-advisor invests on their behalf and they watch their returns, the prominent difference is in the advisor’s investment selection. Ian also said that although other competitors have their robo-advisor do the basic thinking, it is still the human analysts that make the final choices. This is where human emotion can potentially influence said investment decisions.In fact, some have made questionable investments in asset classes that are typically not recommended for beginners to trade in.
Ian stated that Kenanga has its focus on the basis of each individual customer. He mentioned;
“If we were a human advisor advising a family in a jungle of Sarawak, what will we tell them to invest in? How will we do it in a safe manner to protect their capital so we don’t lose too much and give them great returns. We want people who have never invested before to be comfortable investing in us.”
Ian expects the future of robo-advisory to continue to progress and branch out to areas outside of the financial sector. He used the example of how the new Google phone is able to screen calls where the AI answers the phone and asks questions such as ‘who are you, what do you want to talk about’. He mentioned;
“Such AI determines whether you are actually human and are not some car insurances or trying to collect on some debt. These types of advisors will become more helpful and do things on your behalf. They might add in word fillers such as ‘um’ to make it more personable and human”
Ian also expects a more augmented reality with a blend of the real world and the digital world where technology and society evolves even more rapidly. Thus, increasing the chances of people being left behind. He expressed;
“For example, you go to Nordic countries such as Finland or Sweden, everything is so cashless that everyone pays for cards to pay for anything. People who are still paying money are completely left out and can’t even buy a cup of coffee just because you don’t have a card … it is to the point where the government has to step in and say ‘no, you have to accept cash I’m sorry, you must have ATMs available for those who want to withdraw money’”
On foreseeing KDI in helping the youth on their investment journey, Ian expressed that he would never open an investment portfolio for beginners containing a range of diverse investment types such as derivatives, bonds, futures, etc. as it would be too excessive. Rather, he insists on coming to KDI and investing a little bit of money, a safe and worry-free investment, then watch the interest rise and withdraw the money at any time. He said;
“When you’re feeling comfortable, take a bit of a plunge over in KDI investment. Start small at about 250 RM and watch how it grows. You can see what it invests in so you can be comfortable and can see how it adjusts to the market conditions”
Lastly, an advice Ian would give to people who are beginning to invest into robo-advisory is to get started by putting a small amount of money in. Should there be another robo-advisor or savings product that meets your needs, then go for it. Ian also recommended not to leave your money in a wallet or a bank account since it does not make profits. Instead, grow your wealth and put your money to use!
Reviewers: Hurriya Irfan, Jessie Gan
Journalists: Andi Lintar, Xiao Xuan
Editor: Nadiah Mohd Sobri