Accounting for 60% of its working population and a major driver behind the country’s economic growth, millennials in Malaysia are fast becoming a target market for asset managers. But if asset managers are to attract capital from tech-savvy young people in the country, they need to rethink their existing distribution strategies.
An opportunity not to be missed
Recent analysis indicates that Malaysia’s millennials are fairly diligent savers and financially prudent. A survey produced by Dalia Research on behalf of Luno found that 90% of the country’s millennials have a set monthly budget while 70% maintain an actual budget plan.
Despite this robust savings culture, financial literacy levels in Malaysia are quite poor with most people having only a very limited understanding about investments. Moreover, 54% of millennials told Dalia Research they needed more information about how to invest their money. As a result, 31% of respondents did not have any investment strategy whatsoever and 43% do not invest at all, while 16% just invested once every one- two years.
Like many of their peers elsewhere, millennials in Malaysia are active users of technology such as online platforms. For example, the study found 82% regularly use mobile banking services.
Although millennials in Malaysia have yet to fully embrace investing, 100% of those polled confirmed they had a savings account. This implies the millennial market in Malaysia is a potentially ripe opportunity for money managers, assuming they get their distribution strategy correct.
Disruptors scent an opening
While Malaysia is an enticing fundraising opportunity for global asset managers, it is clear that the traditional distribution model needs to be modernised and digitalised if investment firms are to gain people’s trust. A failure to do so puts the industry at risk of disruption.
Right now, asset managers and distributors are vulnerable to being displaced by some of the big technology firms, a number of whom -including Amazon, Google, Samsung, Baidu and WeChat –are starting to offer basic financial services – such as digital wallets, online payment facilities and SME (small to medium sized enterprise) loans – to their users.
Similar disruption is also visible in South East Asia. Grab, for example, recently acquired Bento Invest, a Singapore-based robo-advisor in what should allow the ride-hailing app to start offering retail wealth management solutions to its users, drivers and merchant partners. Other local robo-advisors – including Singapore-based StashAway – are rapidly growing their market share too. StashAway now has more than 100,000 unique users and is targeting further expansion in the region.
Meanwhile, Hong Kong and Singapore have begun issuing virtual banking licenses, which are being scooped up by leading technology companies (e.g. Ant Financial, ZhongAn Virtual Finance) looking to further cement their grip on financial services. Experts believe providers acquiring these licenses could easily make a transition into fund distribution.
Although Silicon Valley leaders are not muscling into the funds’ market just yet, their counterparts in China have been doing so for some time. In just six years, Ant Financial – an offshoot of e-payment giant Alibaba – challenged the funds’ model by taking an existing brokerage business and leveraging the Alipay payment processing platform. Ant Financial now runs one of the world’s largest money market funds – Yu’E Bao, which currently looks after US$157 billion in AuM.
Not only has Ant Financial made it very simple for people to invest in its funds, but the company has developed a platform enabling third party managers to target its users too. Earlier this year, Invesco won US$14 billion worth of investor mandates as a result of its partnership with the Alipay platform.
These developments have not gone unnoticed inside industry circles, many of whom believe it could be a sign of things to happen in emerging markets such as Malaysia.
Addressing disruption
Fund distribution across Asia is an activity that has traditionally been carried out by large domestic retail banks. In addition, fund buyers in the region have generally been older and wealthier, meaning that a large proportion of young – comparatively well-off- savers are unable to obtain the advice they require to make sensible investments.
If asset managers are to win mandates from millennials in places like Malaysia, they need to become more accessible. At the most basic level, the asset management industry must work much harder at educating young people about the long-term advantages of investing.
Simultaneously, it has to digitalise. By adopting disruptive technologies and improving the fund distribution process through a blockchain-supported market infrastructure, managers will not only benefit from operational savings, but they could even widen their appeal among younger investors, many of whom are often deterred from purchasing funds due to the inefficiencies and complexities involved.
Blockchain could also be used to tokenise mutual fund units enabling investors to buy lower denomination amounts of the underlying assets. In effect, this could democratise the entire investment process, allowing managers to make their funds available to larger pools of consumers.
Facing up to the future
Most significantly, asset managers ought to begin collaborating closely with big technology companies in order to widen their distribution reach. While this engagement does not mean asset managers should sacrifice relationships with their traditional bank distributors, technology companies can offer the funds industry greater exposure to new, younger investor demographics.
Take WeChat, which has in excess of one billion active users giving it a potentially massive distribution footprint and access to data. By partnering with big technology companies – whose platforms are used extensively by millennials – the funds industry will be able to expand its market share among young people.
