Unusual competition ahead for fund managers

A low-cost automated online investment services is set to change the nature of competition in the Nigerians fund management landscape, analysts say.

An analyst who Businessday spoke to said that with the entrance Robo-advisers, an online wealth management service, fund managers face the risk of losing younger tech-savvy investors who are more comfortable doing things online. “The technology-based advisor offers a more distribution channels than are currently available to the traditional fund managers”, the analyst noted.

Analysts also noted that the portfolio management software will offer similar services to those of the existing fund managers in the country when it fully enters the industry, but at significantly reduced cost.

“Nigerian fund managers currently charge close to 2% p.a. as management fees”, observes the analyst, “but with robo-advisers, investors may have to pay only an incentive-based fee and avoid the annual management fees that currently constitute a drag on portfolio returns”, she continues.

Furthermore, robo-advisers have the benefit of wider distribution channel, with the potential to offer investment advice even at locations yet unimagined.“Investors will not have to go to the fund managers to get the kind of portfolio management services they desire. Portfolio services will come at the speed of click”, the analyst concludes.

The Financial Times, a prominent United States-based finance newspaper,agrees that the competitive threat is real. Hence, according to the newspaper, “Asset managers, banks and brokers are all looking at the threat to their existing business models and the opportunities robo-advice presents”. But “most investors have simply never heard of robo-advice and have little idea of what it offers”, the newspapers added.

Arguing on the contrary, some analysts say that robo-advisors may not really pose much of a competition. According to them, fund managers can give recommendations about long-term life decisions including planning for a child’s education and recommending an action plan regarding retirement, but a robo-advisor may not have the intelligence to do that. They conclude that the human element may not be completely removed from the fund management process as many of the robo-advisors are not fully automated, but are just tech-assisted firms.

Analysts are of the view that the entrance of the robo-advisers may push some fund managers out of job in a similar way that some stockbrokers have been rendered jobless by the e-trade platform which has been introduced by many stockbroking firms in Nigeria.

“The e-trade platform is an online stockbroking service that allows investors view real time information and buy or sell shares on The Nigerian Stock Exchange from anywhere in the world”, said a statement from Stanbic IBTC Stockbrokers Limited,the leading Nigerian stockbroking firm.

A stockbroker from one of the firms also said that a lot of stockbrokers are not getting jobs and the e-trade platform has even compounded their problems.

“A lot of people who previously pay stockbrokers to buy or sell shares for them now do it themselves”, said the stockbroker who Businessday spoke to.

And this is understandable because similar to what the robo-advisers promise.

“The Bancorp e-trade platform is about ease of stockbroking transactions from the comfort of homes or offices as you are only a click away via your handheld, portable tablet or the good old computer system”, said Capital Bancorp, one of the Nigerian stockbroking firms.

In the light of these, Nigerian fund managers should critically consider the implications of the potential disruption posed by robo-advisers and build flexibility into their portfolio management infrastructure to accommodate future modifications as they become imperative.

 

Innocent Unah