Digital China: March Of The Machines

Yuan Yulai, CEO of machine-based financial advisor Licaimofang, speaks about the coming dominance of robo-advisors in China’s wealth-management market.

Global Finance: Could you explain the core elements of Licaimofang’s technology in simple terms?

Yuan Yulai: Licaimofang is China’s first “All AI” robo-advisor institution, and the technology-driven core competence of the company comprises fully AI-driven decision-making by machine. Supporting this process is the customization of risk for clients, holding the bottom line of every customer’s risk and providing optimal asset allocation across a range of asset classes. The automated financial-advisory service provided by Licaimofang is based on a totality of customer data.

GF: How does China’s robo-advisor market differ from that of the United States?

yuan yilei
Yuan Yulai, Licaimofang

Yuan: In terms of investment strategy, because China’s market is inefficient, it requires active management rather than passive management, which is typical of that sector in the US market.

Because customers are relatively immature in terms of their investment experience, the requirements for personal guidance and education-oriented services are higher. China’s financial-advisor market is a relatively blank slate, so there is no “traditional” financial-advisor system.

GF: Why would I seek to use a robo-advisor when there are many passive-investment strategies, such as investing in ETFs and index funds, at my disposal?

Yuan: The Chinese market is inefficient and the risk premium unstable. Still, active management funds in the Chinese market are generating excess returns versus ETFs. In short, active management funds are still important in China; customers are very much aware of that.

GF: There have been fears of cheating in the robo-advisor market. Are these fears well grounded?

Yuan: Yes, they are. Some organizations have been known to use robo-advisors as a cover, even though behind the scenes the basic model is of manual decision-making and their target is still selling products.

GF: What is the outlook for the robo-advisor market in China?

Yuan: The outlook is positive, principally because China’s middle class is rising rapidly. The available wealth in China that can potentially be managed is valued at up to RMB30 trillion ($4.6 trillion), and is still growing quickly. China’s conventional financial-advisor institutions are not ready, in terms of technology and manpower, to face the market. What’s more, the number of professional financial-advisor institutions in China is small, and what they target is primarily high-net-worth individuals.

Meanwhile, China’s emerging middle class presents a tremendous opportunity, but there are simply not enough financial advisors to meet the need in the short term. In this context, robo-advisory is is the only way to fill the gap. Robo-advisors are a brand-new feature in China’s investment landscape. Just as China’s Internet companies defeated the traditional financial institutions to become leaders in the mobile-payments market, such as Alipay and WeChat, so emerging fintech companies will beat the traditional financial institutions to become absolutely dominant in China’s financial-advisor market.

For GF’s interview of Yirendai CEO Yihan Fang, click here.

For more on Digital China, click here.