Easing the entry of robo advisers, with safeguards, is a welcome step

THE Monetary Authority of Singapore is mulling lower entry barriers for firms offering robo or digital advisory services. This development is a welcome one.

A consultation paper proposes that robo advisory firms, where investors are typically offered algorithm-based portfolios, are to be accommodated under the current regulatory framework that governs fund managers and financial advisers. A number of concessions are proposed. For instance, those offering fund management services for retail investors need not comply with the requirement for assets under management of at least S$1 billion and a five-year corporate track record. Those offering financial advisory services will be allowed to perform portfolio rebalancing without the need for additional licensing. And, digital advisers need not collect all the information on a client's financial circumstances as long as they give adequate risk warnings of the limitations of their advice.

There are a number of safeguards that MAS has stipulated. One is that key individuals must have relevant experience in investment management and technology. The bulk of the portfolios - 80 per cent - must be allocated to exchange traded funds (ETFs), and the balance may be in simple listed single name instruments. To be sure, there are distinct benefits for retail investors. One is the prospect of substantially lower fees. Annual management fees of active equity funds can exceed 2 per cent. A robo portfolio's annual fee is likely to be well under one per cent. Yet another benefit is that with a relatively modest start capital, retail investors get access to diversified portfolio, invested in a disciplined and rational fashion. This segment of investors has long been underserved by banks.