StashAway co-founder Michele Ferrario called out private banks for high fees, product-pushing, excessive risk-taking and other issues in a conversation with finews.asia.
According to StashAway’s co-founder and CEO Michele Ferrario, fee structures at private banks that incentivize transactional activities hinder the ability to provide independent advice, often blurring the line between advisor and salesperson.
«Our wealth advisors are actual advisors, for real. This is because our pricing model is very simple. We charge a percentage of assets,» Ferrario explained in a conversation with finews.asia. «This is not like private banks with relationship managers whose compensation is dependent on what products to sell and what managers to bring in.»
Banned in Mature Markets
Indeed, closer alignment to the distribution side has traditionally been the case not only within certain organizations but even in the broader region itself. The payment of trailer fees from fund houses to banks, for example, continues to be common practice in regulatory regimes like Hong Kong and Singapore but are banned in mature markets elsewhere like the U.K. or the Netherlands.
While investors may benefit from the rising tide that lifts all boats, the transaction-oriented nature of investment flows can face serious risks when markets become turbulent. Overall portfolio performance can be severely damaged by deep corrections and missed opportunities to stay in the market.
Maximum Returns
«We invest with a risk-first approach – in other words, our portfolios are designed to achieve the maximum returns based on a client’s risk profile. This is what enabled investors to stay invested during the correction,» Ferrario explained. «And this is unlike people who invest through private banks, potentially leveraging up on bad market calls only to sell at the bottom and maybe even liquidate other assets to pay for margin calls.»
StashAway’s portfolios generated annualized returns of 4.3-16.5 percent since their July 2017 launch, depending on risk profiles, using an algorithm-based strategy that invests in exchange-traded funds.
This compares to the average net returns of 2.48-10.22 percent generated via U.S. dollar discretionary portfolios by traditional investment managers and banks in the same period, according to data from ARC Research’s private client indices.
Better Than Private Banks
«If you look at our returns so far compared to discretionary mandates in the market, we probably beat most of the private banks,» Ferrario reiterated. «And we charge 0.2 percent per annum for amounts above $1 million. That’s probably a full one percentage points less than the average price charged by private banks for similar portfolios below $10 million.»
In the run-up to the $1 billion last month, StashAway saw 20 percent of assets coming from high net worth individuals, solidifying its confidence that it can be competitive against private banks as a fintech firm not only in terms of investment performance but also client acquisition.
Ramp Up Adoption
While many were previously skeptical about deep digitalization amongst traditional private banking clients, the emergence of alternatives in the marketplace and the growing wealth of relatively younger and more tech-savvy individuals is fueling growth.
«What drives users propensity to use or not to use technology not their wealth but their age,» Ferrario explained adding that the pandemic may have even driven older users to ramp up adoption. «Of course, there will always be a segment that will continue preferring in-person meetings.»
Human Touch Still Relevant
Despite Ferrario’s criticism of fee structures and investment management at traditional financial institutions, he underlines that private banks remain very relevant to the broader wealth management industry in other facets.
«I think there are certain things that will be completely automated over time. There is very little reason to have a high human touch in areas such as managed investments or asset allocation,» he said. «But in other areas, this will remain crucial such as wealth and legacy planning, for example, which will always require in-person advice.»
