Wealthtechs chase the ‘sandwiched rich’ with curated products, tailored services

FINTECH startups eyeing the wealth management sector have a plethora of products and services for the average Joe, from investing to cash management. But average Joes are not from whom platforms such as Stashaway and Endowus earn the bulk of their management fees.

These platforms have their eyes trained on the “sandwiched rich”, or high-net-worth (HNW) individuals who qualify as accredited investors (AIs), but have not quite reached the private bank client league.

To be an AI in Singapore, an individual must have either earned S$300,000 in the preceding 12 months or have over S$1 million in assets.

This segment is a growing one that wealthtechs, facing a tougher funding environment and turbulent public markets, are now leaning on for revenue.

According to an Endowus and KPMG report, Asia as a region showed the highest five-year growth in financial wealth, at 68 per cent. As at 2021, Asian financial wealth is at US$52.3 trillion, or about 20 per cent of the global wealth.

Having these clients in their fold is particularly important since most financial institutions follow the 20/80 rule, where 20 per cent of customers make up 80 per cent of revenue.

Fintech players have been working to grow the segment. Stashaway says AIs made up 35 per cent of assets under management in 2022, up from 20 per cent in 2020. Endowus reports that its assets have tripled since launching its suite of products and services for AIs.

Endowus recently laid off less than 10 per cent of its workforce, according to media reports. The platform’s chief executive officer Gregory Van cited the sharp pullback in tech and markets in 2022 as the reason for the layoffs.

“Even during the most challenging periods for the industry – the pandemic and the market downturn in 2022, AIs who have onboarded and invested via our platform have continued to grow,” said Samuel Rhee, chief investment officer, Endowus.

Curating these products, according to the platforms, follows extensive due diligence and a framework to differentiate offerings from the retail segment.

“Despite deep interest in the alternatives space, many investors often face obstacles, illiquidity, and complicated cost structures when trying to access them via traditional players,” said Rhee.

Rather than having to put up market minimums, these platforms lower the barrier to entry by also lowering minimums for buying private funds.

“While market minimums for PE (private equity) or VC (venture capital) funds can range from US$250,000 to US$1 million per fund, we’ve lowered the barrier to entry so significantly that clients get a portfolio of five to seven funds for as little as US$50,000,” said Michele Ferrario, co-founder and chief executive officer, Stashaway.

The focus on private markets comes out of investors’ preferences. A recent Lombard Odier study showed that of Singapore’s HNW individuals, 60 per cent surveyed showed interest in private equity, private debt, real estate and infrastructure.

While investors are still after higher returns, safety has moved to top of mind in markets still roiled by volatility.

Stashaway has put out its Simple Guaranteed product, an offering that mimics a fixed deposit. This product aiming to find the best rate for a six-month fixed deposit across the various banks, with no minimum or maximum amount.

At launch, the product will offer a 3.4 per cent rate underwritten by Citibank’s Singapore branch.

Clients were behind the new product, says Stashaway’s Ferrario. “They are always looking for guaranteed returns and this is a good way to give them guaranteed returns,” he said.

Heating up

Wealthtechs operating in Singapore are already seeing increased competition from global players expanding into Asia. Berlin-headquartered Moonfare, launched in Singapore in April 2022, is an AI-only wealth management platform.

“Asia, and in particular Singapore, has been an important and strategic hub, and the first continent we expanded to, before the US, since we founded the company,” said Steffen Pauls, founder and CEO, Moonfare.

To differentiate themselves from the private banks aimed at the same client segment, these platforms tout their curated product offerings and a tech-enabled solution, making investment almost seamless.

“The process that you’re experiencing is very, very different from if you would invest over a bank… if you know what you want to invest in, out of our curation of funds, it takes you 15 minutes,” said Pauls.

Moonfare, for instance, offers access to mainly private equity funds, along with a secondary market for users to buy or sell funds.

“Even professional institutional players and family offices are struggling with managing PE funds, it’s a long-term 10-year investment. If they want to liquidate it for cash, they can’t do this with a bank,” said Pauls.

Stashaway and Endowus also offer private equity funds, and other alternatives. Stashaway, for instance, offers opportunities to invest into venture capital funds and be an angel investor as part of the XA Network. Endowus offers hedge funds such as Amundi, and private credit funds.

Syfe, a wealth management platform, is also launching a fixed income portfolio product with investment firm Pimco. Syfe Income+ will give users access to active funds from Pimco’s fixed income product suite.

There are two fixed income portfolios on offer – Income+Preserve and Income+Enhance. Income+Preserve will offer investors a 4 per cent to 4.5 per cent return per annum, while Income+Enhance will offer 5 per cent to 6 per cent per annum. Investors will receive these returns monthly.

Beyond AIs, platforms such as Endowus and Moonfare are also targeting family offices, of which there are about 700 in Singapore as at January 2023, up from around 400 at the end of 2020.

“Because of our global footprint, we also do global sourcing, so family offices in Singapore will be able to tap the most interesting funds from Europe, the US and Asia,” said Moonfare’s Pauls.

The key then to unlocking this segment appears to be in awareness and education.

All wealth management platforms advertise their resources to help educate customers, from content to seminars to wealth advisers.

“This hybrid approach of providing quality educational content and the availability of personal wealth advisory services will help AIs make better financial decisions and achieve better outcomes,” said Ferrario.

Endowus’ Rhee said: “We have also observed a steady increase in clients who verify their AI status on our platform, which enables them to participate in such sessions to build up their financial knowledge repository.”