The robo-advisor ( RA ) market, where artificial intelligence ( AI ) algorithms help individuals with investment advice, has fallen into a sharp recession. Although it has been 7 years since related solutions were introduced in Korea, it is still difficult to find a ‘big fish-level’ platform like overseas. As profits worsen, the identification of platforms is accelerating. The banking sector, which has led the market so far, has begun to liquidate a large number of free recommendation-type robo-advisors that were used to sell funds. Recently, some companies are turning to the business-to-business ( B2B ) market , which provides operating algorithms to financial companies instead of individuals . Amid a sense of crisis amidst management difficulties and difficulties in attracting investment, attention is being paid to whether the retirement pension market will be a breakthrough for the revival of related industries.
The robo-advisor market has collapsedAccording to KOSCOM on the 13th, based on the robo-advisor testbed registration algorithm, assets under management ( AUM ) and the number of subscribers decreased sharply last August . The size of operating assets, which remained at 1.9425 trillion won until the end of July, plummeted by more than 73% to 516.2 billion won in August. The number of contractees also decreased from 377,126 to 299,154, with 77,972 people leaving.
Robo-advisors are divided into ‘free recommendation type’, which banks use as a means of selling funds, ‘advisory type’, which only provides investment advice to customers for a fee, and ‘discretionary type’, which takes charge of customer assets and buys and sells them. The reason the market has shrunk is because commercial banks have eliminated a large number of free recommendation robo-advisors that have reached the end of their marketing lifespan. Last month, December & Company, which operated Korea’s first discretionary robo-advisor ‘Pint’, was taken over by a private equity fund after financial difficulties.
Discretionary robo-advisors led by fintech platforms are maintaining their presence. First-generation advisory robo-advisors such as ‘Bulio’ and ‘Aim’ were excluded from this test bed count. According to the Korea Financial Investment Association, the total robo-advisor-based investment advisory contract funds amounted to 29.8747 trillion won as of June.
The failure of the first generation robo-advisorsRobo-advisors began to be introduced in Korea in early 2016 as interest in AI grew due to the Go match between AlphaGo and Lee Sedol . In 2019, the regulations for discretionary robo-advisors were greatly improved, laying the foundation for growth.
The one at the forefront was December & Company, of which NCSoft founder and CEO Kim Taek-jin was the largest shareholder. After six years of technology development since its establishment in 2013 , it developed an unrivaled AI asset allocation engine and launched Korea’s first AI non-face-to-face discretionary investment platform, Pint, in April 2019. A large-scale publicity campaign was launched with actress Jeon Ji-hyun, but the deficit grew like a snowball. As of the end of June, the company was experiencing capital erosion with a loss of 80 billion won. In the end, last month, management rights were handed over to private equity fund management company Forest Partners on the condition that the company shoulder the losses.
A venture capital ( VC ) representative pointed out, “ It is not easy for AI to produce better returns in the domestic stock market, where direct investment centered on theme stocks is the trend.” The annual rate of return of the robo-advisor algorithm compiled by KOSCOM (as of the 13th) is 4.49%, which is lower than the rate of return of the KOSPI index (6.13%) and KOSDAQ index (13.73%).
Shifting from B2C to B2BAs the advisory/discretionary메이저놀이터 robo-advisor market for individuals is fading, robo-advisors that provide AI operation solutions to financial institutions have also emerged. Kraft Technologies has decided to list an ETF using AI models on the New York Stock Exchange with LG AI Research Institute in November . In 2019, Kraft listed Korea’s first AI -managed active ETF ‘ AMOM’ on the US stock market, and is providing AI solutions to over 20 financial institutions, including the National Pension Service. Last year, it received an investment of $146 million from Softbank. Acros Technologies, founded by a former Craftsman, is also focusing on platform business as a B2B business that only handles ETF design. Quantit launched an institutional AI portfolio order execution service in November last year and entered into a technical cooperation partnership with KB Asset Management.
Will there be a breakthrough in the retirement pension market?While the robo-advisor market has stagnated, expectations are growing that the retirement pension market will make a breakthrough. The Ministry of Strategy and Finance announced in July that it would push for a regulatory sandbox (deferral) special case for robo-advisors’ discretionary investment service for retirement pension reserves. Until now, it was possible to present a retirement pension portfolio through a robo-advisor, but discretionary services such as buying and selling were not possible.
Fount, who became the second largest shareholder of POS Securities last year, plans to target the pension market by pursuing a complete acquisition. Its subsidiary, Fountain Investment Advisory, exceeded 1.5 trillion won in operating assets in the first quarter of this year. Quantec is expanding its partnership with Shinhan Investment & Securities and NH Investment & Securities. In the United States, the robo-advisor market also grew as the retirement pension (401K) market opened. More than half of 401K assets are managed by robo-advisors.
However, some predict that when the retirement pension market opens, the real winners will be securities companies, not robo-advisor platforms. Mirae Asset Securities announced that more than 10,000 accounts have signed up for the retirement pension robo-advisor service launched in September last year. An official from an asset management company said, “Numerous fintech platforms have emerged, but ironically, the market is solidifying around traditional financial companies,” and added, “Whether it is a robo-advisor or a piece investment platform, those that have solid strategic collaboration with securities companies will survive.” .
The robo-advisor industry is in a difficult situation as it is unable to escape the deficit due to its tight fee structure and market recession, making it difficult to attract investment. Entering this year, Quantitman succeeded in attracting 30 billion won worth of investment in March. A VC who runs a fintech venture fundThe CEO said, “We see payment platforms such as overseas remittances and cards as more promising than robo-advisors,” and added, “Insurance and banks are also investing in non-financial platforms that can increase new customers.”