Over the past few years Singapore has seen the birth of several fintech startups that are using automation and AI to replicate the role of human financial advisors, helping users to preserve and grow their wealth through passive investing.
With lower fees than banks and fund managers, these robo-advisors reckon they can make more money for their users than their offline competitors. But the more pressing question for them and their backers is how they can make money for themselves operating with razor-thin margins.
One of this new crop of robo-advisors, StashAway, today announced it has raised US$5.3 million in its series A round.
Most of the investors were not disclosed, though the startup said that a group of family offices, including previous backers the Rozario family and one new investor, participated in the round.
This latest injection of capital brings StashAway’s total funding to date to US$8.4 million across three funding rounds.
StashAway co-founder and CEO Michele Ferrario – a former group CEO at ecommerce platform Zalora – told Tech in Asia that the fresh funding will be used to improve its service offering through further development of its AI tech.
The capital will also help StashAway launch in one new market in the Asia-Pacific region later this year.
Robo-advisors claim their competitive advantages over human-managed mutual funds (also known as unit trusts) and established automated investment options like exchange-traded funds (ETFs) is their ease-of-use, transparency, and substantially lower fees.
With teams of human professionals making investment decisions for you, mutual fund managers have high overheads compared to ETFs and robo-advisors. They’ll typically charge fees in the region of 2 to 3 percent of your initial investment, according to Kenneth Lou, CEO at personal finance site Seedly.
Robo-advisors instead make investment decisions based on modeling and algorithms, allowing them to charge 0.5 to 1 percent fees.
Lou found that StashAway was generally the most costly robo-advisor in Singapore in terms of fees when he compared it to two competing startups, AutoWealth and Smartly.
However, StashAway claims to be the only one that requires a zero minimum balance from users.
“At the end of the day, consumers are making a decision on what is the best investment product, not on the fact that an annual fee is just a little bit lower or the interface looks nice,” said Ferrario. “With that said, no robo-advisor will win with just having lower fees, no lock-in period, or a low minimum balance.”
In Ferrario’s opinion, StashAway’s proprietary investment methodology, which is focused on risk management, is what sets it apart from the competition.
“This isn’t different just to [other] Singapore robo-advisors, but we are arguably the only robo-advisor in the world offering this level of investment sophistication to both retail and accredited investors.”
“This isn’t to say that we won’t have drawdowns, but by reading macroeconomic data, the technology manages the portfolios so that the ups and downs aren’t nearly as severe,” he said.
Nevertheless, fees remain, for now, the only source of income for StashAway. Just how it and other robo-advisors can generate additional revenue and move towards profitability remains unclear.
“With that in mind, it goes without saying that this is a business model that requires us to really scale,” said Ferrario. “As a result, we’ve invested a lot into tech and our team to build the best product in the space. It’s going to take time, but we’re doing all the right things, and are exceeding our projections.”
This is a developing story. Check back for updates.
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