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Wealth Management on Fast Track with AI and Digital Technology

Apr 23-2020   



 

In his lecture for the PKU Digital Finance Open Class Series, Adjunct Professor Huang Zhuo of the NSD presented a wealth of insights on China’s wealth management sector, in particular its integration with AI and digital technology.

 

Prof. Huang cited different sources that estimated China’s private investible assets at 100-300 trillion yuan, making it the third largest private wealth management market in the world. Yet Chinese residents have a dearth of feasible investment channels, and real estate has lost its shine as an investment or value-store vehicle.

 

The more one’s assets are, the more personalized his requirements for wealth management, and the more open he is for sophisticated financial products. Private investors can be broadly assigned into four groups based on the size of their investible assets, with long-tail clients (a war chest of below USD10,000) at the low end and high-net-value clients (above USD1 million) at the other end. In 2013, Alipay was the first to launch a financial product that allowed investors to manage their assets on mobile devices.  As a result, deposits to the tune of trillions yuan were sucked away from banks, which hastened traditional financial institutions to embark on digital transformation.

 

Prof. Huang also looked into the wealth management market in the US and identified some lessons for China. Wall Street has a long history of using AI and digital technology, for the core of asset allocation and risk management lies with quantitative analysis. The impact of AI is corroborated by the evolution of established investment banks like Goldman Sachs, which has become more of a technology company as over 1/4 of its employees are programmers and engineers. According to Opimas, a consultancy, Wall Sreet will see a sharp decrease in traditional jobs and an obvious uptick in technical types by 2025. Another major development on the Wall Street is the extensive and still-expanding adoption of Robo-advisors in wealth management.

 

Similarly, AI and digital technology are on the fast track to empowering wealth management in China. They are useful for intelligent investment and research and for building investment portfolios. On the client-end, they immensely expand service access to clients and enable personalized asset allocation.

 

Changes are afoot in China’s wealth management sector, notably the emergence of wealth-management arms of banks, the rapid development of common funds, ETF and other derivatives, as well as the adoption of Robo-advisors and Fund or Funds. Notwithstanding the vast potential to be unleashed by AI and digital technology, challenges abound. The investors have tough choices to make among the myriad of products and platforms on offer, and have yet to adopt a long-term investment philosophy. Commercial banks need to effectively mine the data, differentiate the demands of different client groups and provide customized services, and retool various aspects of its system so as to be most suited to their new roles. For regulatory bodies, some important issues to address might include how to evaluate innovations and risks in the wealth management sector, how to enforce market entry while strengthening oversight of qualified investors, rates, and information disclosure, and how to ensure investors’ rights, privacy and data security, among others.

 

Wealth Management on Fast Track with AI and Digital Technology

Apr 23-2020   



 

In his lecture for the PKU Digital Finance Open Class Series, Adjunct Professor Huang Zhuo of the NSD presented a wealth of insights on China’s wealth management sector, in particular its integration with AI and digital technology.

 

Prof. Huang cited different sources that estimated China’s private investible assets at 100-300 trillion yuan, making it the third largest private wealth management market in the world. Yet Chinese residents have a dearth of feasible investment channels, and real estate has lost its shine as an investment or value-store vehicle.

 

The more one’s assets are, the more personalized his requirements for wealth management, and the more open he is for sophisticated financial products. Private investors can be broadly assigned into four groups based on the size of their investible assets, with long-tail clients (a war chest of below USD10,000) at the low end and high-net-value clients (above USD1 million) at the other end. In 2013, Alipay was the first to launch a financial product that allowed investors to manage their assets on mobile devices.  As a result, deposits to the tune of trillions yuan were sucked away from banks, which hastened traditional financial institutions to embark on digital transformation.

 

Prof. Huang also looked into the wealth management market in the US and identified some lessons for China. Wall Street has a long history of using AI and digital technology, for the core of asset allocation and risk management lies with quantitative analysis. The impact of AI is corroborated by the evolution of established investment banks like Goldman Sachs, which has become more of a technology company as over 1/4 of its employees are programmers and engineers. According to Opimas, a consultancy, Wall Sreet will see a sharp decrease in traditional jobs and an obvious uptick in technical types by 2025. Another major development on the Wall Street is the extensive and still-expanding adoption of Robo-advisors in wealth management.

 

Similarly, AI and digital technology are on the fast track to empowering wealth management in China. They are useful for intelligent investment and research and for building investment portfolios. On the client-end, they immensely expand service access to clients and enable personalized asset allocation.

 

Changes are afoot in China’s wealth management sector, notably the emergence of wealth-management arms of banks, the rapid development of common funds, ETF and other derivatives, as well as the adoption of Robo-advisors and Fund or Funds. Notwithstanding the vast potential to be unleashed by AI and digital technology, challenges abound. The investors have tough choices to make among the myriad of products and platforms on offer, and have yet to adopt a long-term investment philosophy. Commercial banks need to effectively mine the data, differentiate the demands of different client groups and provide customized services, and retool various aspects of its system so as to be most suited to their new roles. For regulatory bodies, some important issues to address might include how to evaluate innovations and risks in the wealth management sector, how to enforce market entry while strengthening oversight of qualified investors, rates, and information disclosure, and how to ensure investors’ rights, privacy and data security, among others.