BY Dr Gordon Tan Kuo Siong

With the rise of FinTech, more people are turning to robo-advisers but this prevents people from being financially literate, says SUTD’s Gordon Tan.

Many consumer-facing Financial Technology (FinTech) firms have emerged to help Singaporeans with their financial affairs, from digital payments to insurance to remittances. Among them are robo-adviser firms that assist with investing.

Popular ones include StashAway, Syfe and AutoWealth.

Robo-advisers rely on algorithms to customise asset portfolios according to the client’s tolerance for risk. Portfolio rebalancing is done automatically in response to changing market conditions.

All these automated features eliminate the need for active management by the investor. The low fees charged compared to human investment managers have further stimulated interest in robo-advisers, as seen from numerous articles and discussion threads on local financial forums like Seedly and MoneySmart.

A Statista report estimates that assets under management by local robo-advisers and user numbers are projected to grow by more than 50 per cent this year to reach US$1.06 billion and 105,000 users respectively.


With financial concerns being foremost on people’s minds during economic downturns, will there be keener interest in financial investments in our current climate?

Two commonly cited reasons for not investing are the perceived complexities of acquiring financial knowledge and the lack of time for investing and portfolio management.

Robo-advisers remove these obstacles with the help of technology, making them a great way to start investing, especially for beginners. The sign-up process is extremely convenient.

An account can be set up in 15 minutes. One only needs to complete a simple questionnaire that is fed into an algorithm to recommend a suitable portfolio based on the client’s financial goals and risk appetite.

Typical questions include age, gender, marital status, income, investment horizon and goals – for example saving for a house versus planning for retirement. Risk assessment is based on questions such as familiarity with different financial products and tolerance for gains and losses.

After that, the portfolio is managed by algorithms based on modern financial models.

Another advantage is the separation of emotions from investing. With investing delegated to sophisticated trading algorithms, investors are less likely to react viscerally to adverse market movements and withdraw from the market out of fear.

Robo-advisers also encourage good investing habits by prompting investors to contribute regularly to their portfolios. This allows investors to take advantage of dollar cost averaging (DCA), which has been shown to be an effective strategy in enabling amateur investors to accumulate wealth in the long term.


But technological wizardry is never without its downsides. Although robo-advisers are beneficial to beginner investors, they also present some problems.

With their focus on convenience and efficiency, robo-advisers are unable to make investment recommendations which are tailored specifically to each individual’s unique financial situation.

Rather, they allow investors to choose from a limited menu of pre-selected portfolios. They handle only the investing aspects of personal finance and lack the personal touch of human financial advisors.

The latter spend considerably more time in understanding their clients’ needs, and thus offer different products that cater to various aspects of comprehensive financial planning, such as savings and insurance.

And yet, not all consumers desire such a high level of personal engagement over their financial matters.

Indeed, one of the main selling points of robo-advisers is the low level of investor involvement required. However, as I argued in a recently published study on robo-advisers in Singapore, this hands-off approach induces investor passivity.

This lack of investor involvement is driven by the apparent objectivity of algorithms and contemporary finance theories together with user interface elements designed to discourage greater user control.

Such passivity comes from an overreliance on automation in many aspects of our daily life, now extending even to the management of our personal financial affairs.

Investor passivity may encourage a laid-back attitude towards other aspects of financial planning and the reluctance to acquire financial knowledge, where we prefer to delegate this seemingly onerous task to machines and algorithms.

Investor passivity is a double-edged sword. While robo-advisers certainly appeal to the tech-savvy, inactive investors and those with limited capital, automated investing may not work for active investors who prefer to retain control of their portfolio and may be uncomfortable with letting a robot fully manage their money.

A HSBC survey in June found that only a quarter of Singaporeans had used mobile banking to invest. This reluctance towards digital wealth management reflects the general lack of knowledge or confidence in investing, underscoring the need to equip Singaporeans with financial literacy.

But this apathetic group could very well be the key segment that robo-advisers pitch their services to. Investors therefore need to have some basic investing knowledge to be clear about what robo-investing entails.


The lack of financial knowledge can be devastating, as highlighted by the tragic suicide of Alex Kearns, a young American investor who took his own life after he mistakenly thought he had racked up hundreds of thousands of dollars in losses from trading options on the Robinhood app.

Kearns misunderstood the way Robinhood presented the result of his trades but since his passing, the app founders issued a statement “pledging to tighten eligibility criteria, educational resources and upgrades to its user interface for customers trading options.’’

The lesson in this for investors is that they need to be savvy about the platform – which speaks to digital literacy. This is in addition to having financial knowledge about sound investing and financial planning.

Gaining financial knowledge is important to sound investing and financial planning. As the phrase “caveat emptor” suggests, the onus is on buyers to conduct due diligence before making a purchase. Shoppers seek information about the specifications of the products that they buy.

In essence, investors should be equipped with the knowledge to familiarise themselves with the financial products that are recommended by robo-advisers.

As for the companies which push these products – clear resources about how their products work is important.

Some local robo-advisers have already introduced educational initiatives to foster more knowledgeable investors. StashAway has made available for free a series of courses covering personal finance and investing on its app as well as emails its investors regular newsletters and market commentaries.

Syfe publishes short articles and hosts online workshops that impart financial knowledge to the public. Such initiatives are commendable but should not be regarded as optional extras.

Instead, they should be programmed to educate their clients about financial literacy in accessible and engaging ways for a win-win outcome.

Ultimately, if robo-advisers improve their clients’ financial literacy and investors make the effort to know what they are buying into, consumers will have even greater confidence in making financial decisions augmented by machines and entrust a robot with growing their wealth.

Dr Gordon Tan Kuo Siong is Faculty Early Career Award Fellow at the Singapore University of Technology and Design. He is researching the impact of FinTech on consumers. This commentary is based on an article published in the peer-reviewed academic journal Geoforum.

Leave a Reply

Your email address will not be published.