08.31.2016
By Rob Daly

Japan’s Robo-Advisors Need Diversification

Robo-advisors have established a toehold in the Japanese retail investment market but might become a fleeting phenomenon if the industry does not change how it interact with clients, according to the latest research by Celent.

“Unlike the global wealth market, the Japanese market tends to emphasize allocating assets to deposits rather than potentially highly profitable securities like equities,” wrote Eiichiro Yanagawa, a senior analyst at Celent and the report’s author.

Celent estimates that Japanese investors maintain more than half of their assets in cash or deposits.

Eiichiro Yanagawa, Celent

Eiichiro Yanagawa, Celent

“The asset management emphasis toward savings deposits has persisted through the nation’s deflationary phase, but with the introduction of inflation targets and drastic monetary easing, this approach increasingly makes less sense,” he added. “This leaves one wondering when the tide will change and who or what will trigger a change.”

In the meantime, megabanks, online securities brokers, and startups like Mizuho Bank, Monex, and Money Design, rolled out robo-advisors to their clients in 2015.

The first-generation offerings primarily focus on the sale of mutual funds to financially literate customers who have the assets to invest.

Yanagawa believes that that focus is too narrow and will need to expand if the robo-advisor providers want to grow their customer base.

“It will be important for players to expand the market’s reach to include customer segments in the stage of asset creation, namely younger generations in the midst of becoming financially literate and the senior demographic of customers with little experience with technology,” he added.

As easy-to-use non-face-to-face channels, robo-advisor are garnering the attention of financially literate investors who are comfortable with technology.

However, Yanagawa believes that the next generation of robo-advisor will need to diversify their product support and services as well as accommodate automated functions like portfolio rebalancing and reinvestment.

If robo-advisory services are to gain traction, they are going to have to push boundaries and acquire new customers, he concluded.

 

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