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1、The Empowerment of the Asian Retail InvestorUnderstanding the Evolving Investment Behavior of Asian Retail Investors and How to Cater to ThemA Report from Kapronasia in Collaboration with ViewTradeSeptember 2022ContentsExecutive Summary 3Key Findings 4Introduction 5Identifying Asias Retail Investors

2、 6Changing Asian Retail Investor Needs 9Challenges in Serving the Asian Retail Investor 21Gaps in Current Retail Offerings and Services 24Conclusions&the Future 262The Empowerment of the Asian Retail InvestorExecutive Summary 1 Katharina Buchholz,Statista,“This chart shows the rise of the Asian Midd

3、le Class,”Jul 2020,https:/www.weforum.org/agenda/2020/07/the-rise-of-the-asian-middle-class As economic dynamism has shifted East to give rise to what has been termed the“Asian Century,”hundreds of millions of people across Asia have achieved middle income status.Research by the Brookings Institutio

4、n shows that in 2020 the Asia Pacific region accounted for a 54%share of the global middle-class and that number is set to increase to 65%by 2030.1 As affluence across the region grows,people are looking for ways to further build and diversify their wealth.In recent years,technological advancements

5、and innovative new business models have removed barriers preventing retail investors from accessing global financial markets.The emergence of robo-advisors offering a portfolio of low-fee funds and low-cost online brokerages has spurred participation by retail investors in the capital markets.When t

6、he pandemic broke in early 2020,that participation turned into a frenzy as people put their lockdown-induced savings to work on digital wealth platforms and on easy-access digital trading platforms.However,Asia Pacific is not a homogenous region.The skew of the typical investor archetype will vary a

7、cross the regions fragmented markets.In Asias aging,developed economies such as Singapore there are likely to be more mass affluent,passive,older investors with low-risk profiles and in its young,emerging markets such as Indonesia there are likely to be more Millennial/Gen Z traders with high-risk p

8、rofiles.What is clear from our research is that digital transformation is bringing about a profound shift in how retail investors expect to be served.If brokerages across the region want to remain relevant,they will not only have to invest in digitalization,but also in providing the right customer j

9、ourney for their customers.That is going to require agility and potential collaboration with other players in the ecosystem if they want to adapt quickly to rapidly changing customer preferences and fierce competition from new entrants entering the market.This paper looks to understand Asian retail

10、investors,their investing behavior and how they are currently being served across the region.It will look to understand how the competitive landscape is evolving and what players will need to do to stay ahead.3The Empowerment of the Asian Retail InvestorKey FindingsMethodology Kapronasia conducted b

11、oth primary and secondary research in Asia Pacific to obtain the most relevant insights from the industry around Asian retail investors.Secondary Research:Sources included but were not limited to,market intelligence reports and studies by industry experts and professional services networks,white pap

12、ers,educational materials,media articles,and marketing collateral.Primary Research:Interviews were secured from relevant players across the ecosystem,including financial institutions,fintechs,and industry experts.All values are in U.S.dollars($)unless otherwise noted.Retail investors will fall on a

13、spectrum across three dimensions:Traders versus asset allocators,Millennials/Gen Zs versus the Gen Xs/Baby boomers,and mass retail versus HNWIs.While these dimensions are universal,the skew of where an investor will fall will often be market dependent with a split between mature and emerging markets

14、.The stark lesson for brokerages across the region is digitalize or cease to exist.The switch by retail investors to online has been dramatic.The switch to mobile has been more dramatic still.Competition is already fierce and is only going to increase.To survive and meet the demands of their custome

15、rs,traditional brokerages within the region should consider opportunities to collaborate with other players in the ecosystem.Customer-centricity has become the name of the game.Rapidly changing customer preferences require agility to respond quickly.Brokerages have to become adept at providing that

16、customer journey.Both the retail investor segment and the younger retail segment have grown rapidly over the last two years.While the main revenue generator for the majority of brokerages across the region is still the older investor segment,they cannot afford to take their eye off the strategically

17、 important younger retail investor segment.4The Empowerment of the Asian Retail InvestorIntroduction2 Jonathan Woetzel and Joydeep Sengupta,McKinsey Global Institute,“Asia-Pacific should use its increasing wealth more productively,”Jan 2022,https:/ Katharina Buchholz,Statista,“This chart shows the r

18、ise of the Asian Middle Class,”Jul 2020,https:/www.weforum.org/agenda/2020/07/the-rise-of-the-asian-middle-classAccording to the McKinsey Global Institute,wealth grew fourfold between 2000 and 2020 across Asia Pacific,with the region now accounting for some 42%,or$218 trillion,of total global wealth

19、.To provide a benchmark,net worth has risen some$360 trillion since 2000 globally,and$165 trillion of that growth occurred in the Asia Pacific region.2Research by the Brookings Institution shows that in 2020 the Asia Pacific region accounted for a 54%share of the global middle class and that number

20、is set to increase to 65%by 2030.According to Brookings,in 2030,two in three members of the middle class will be Asian.3(Figure 1)As wealth continues to move East,the affluent are looking to both protect and grow their wealth,while the aspirational mass segment,predominantly the younger generation,a

21、re looking to hit their wealth goals quickly.In recent years,technological advancements,digital transformation,and innovative new business models have removed barriers preventing retail investors from accessing financial markets.The same trends are being seen in Asia.The number of retail investors,e

22、specially younger retail investors is growing and will continue to grow.As they do so,brokerages within the region will increasingly be slicing and dicing these into specific target segments.At the same time new digital-first entrants are putting tremendous pressure on traditional brokerages through

23、out the region.Asia Pacific is also highly fragmented with each market having its own regulatory framework,level of maturity,and language.There is no European Union or United States single market equivalent,which makes it difficult for brokerages to scale their products and services.This paper looks

24、 to understand the Asian retail investor by looking at how their needs and requirements have changed over time.It will also look at the current obstacles and challenges for brokerages in serving the Asian retail investor and what gaps in the market remain.It will then conclude by looking to the futu

25、re to see how the market is changing over time and what brokerages must do now and in the future to provide value to their retail investor customers.Asia PacificEuropeAmericasMiddle East and North AfricaSub-SaharanAfrica20302020Middle class=households with income between US$11-US$110 per person/day(

26、PPP)in 2011 Source:Brookings InstitutionFigure 1:The rise of the Asian middle classShare of the global middle class by region,%5 54 4%2 20 0%1 17 7%6 6%5 5%4 4%4 4%1 13 3%1 14 4%6 65 5%5The Empowerment of the Asian Retail InvestorIdentifying Asias Retail InvestorsThe archetypes of Asian retail inves

27、tors and their evolutionBroadly speaking Asian retail investors,along with their peers globally,can be categorized along three dimensions:The traders versus the asset allocators,the Millennials/Gen Zs versus the Gen Xs/Baby boomers,and the mass retail versus the high-net-worth individuals(HNWIs).On

28、each of the dimensions there is a spectrum where an individual might fall.Traders versus asset allocators:At one end of the spectrum are the traders who are active,typically have high-risk profiles,are looking for high returns,and have short time horizons.At the other end of the spectrum,are the inv

29、estors in the traditional sense of the word,which follow a diversified portfolio,asset allocation strategy and whose investment time frame is much longer.These are typically conservative,passive,buy-and-hold types,with low-risk profiles and long time horizons.Along the spectrum is everything in betw

30、een,including what might be called the hybrids.These investors will have both a diversified portfolio and be active traders.The Millennials/Gen Zs versus the Gen Xs/Baby boomers:This dimension is self-explanatory.At one end of the spectrum there are the Millennials(born between 1981-1996)and Gen Zs(

31、born between 1997-2012),and at the other end of the spectrum are the Baby boomers(born between 1946-1964)and the Gen Xs(born between 1965-1980).Mass retail versus HNWIs:This dimension is related to an investors liquid financial assets and disposable income.At one end of the spectrum is the mass reta

32、il segment and at the other end are the HNWIs.In between are what might be called the affluent and rising affluent.In developed markets such as Singapore and Australia,HNWIs are often not included in the retail investor bucket as these are classified as sophisticated investors and are usually served

33、 through private banking accounts.There is variation across markets.While these three dimensions are universal,the skew of where an“investor”will fall on each of these three dimensions varies across markets.In Asia Pacifics aging,developed economies there are likely to be more mass affluent,passive,

34、older investors with low-risk profiles.In the regions young,emerging markets such as Indonesia there are likely to be more Millennial/Gen Z active traders that are tech savvy and have high-risk profiles.Ping May Saw,Group Head,Strategy&Analytics at CGS-CIMB in Singapore says,“in Indonesia,which is a

35、 young market anyway,young retail investors are taking over compared to older investors.While in markets like Singapore,which has an aging population,these older investors still dominate.”It is a similar situation in Japan which is famously growing old.Chiharu Kawai,Principal at a financial informat

36、ion vendor in the country says that according to his research,based on data from the Japan Securities Dealers Association,as of March 2021 there were 33.4 million accounts registered for online trading,of which 20.2 million had a balance.Of those with accounts,60%were over 50 years old;20%were in th

37、eir forties,while the total for those in their 20s and 30s was less than 20%.It is easy to see why there might be these market nuances in terms of the skew of investor types.One would expect risk profiles to vary across age groups where time horizons and savings goals are different.In a region as fr

38、agmented as Asia Pacific,where you 6The Empowerment of the Asian Retail Investorhave emerging markets with sizeable young populations and mature developed markets with sizeable aging populations,these nuances are inevitably going to be more pronounced.George Lucas,CEO of Raiz Invest,a micro-investin

39、g and fintech platform operating in Australia,Indonesia and Malaysia explains further,“in Indonesia,its the young,tech-savvy generation with disposable income.The older generation,for the most part,is not interested in financial products via a fintech platform.”He adds,“when you look at Asias emergi

40、ng markets,this younger segment is very aspirational.A lot of goal saving will be associated with things like saving for marriage or saving for emergency funds for their parents.It is also about increasing wealth at a faster pace.They are very focused on improving their lives,far more so than most A

41、ustralians in the same age group.”By contrast,Kelvin Lee,CEO of the Fundnel Group,an investment marketplace,believes that the Singapore market has evolved to cater for the needs of older Singaporean investors who are looking for a regular dividend income.He adds,however,that“there is a newer generat

42、ion of retail investors who want to participate in the Singapore market,but for now,theres no avenue for them to do so from a traditional exchange perspective.”It is important to note,however,that in general there will be a lot more diversification in terms of investor type in the more developed,mat

43、ure markets compared to the emerging markets.That reflects the level of financial literacy among the local population and their access to information and it is also because there are simply more financial products and options for retail investors to choose from in these more mature markets.William S

44、u,Head of Digital Finance at Sinopac in Taiwan highlights this point.He says that given Taiwan has become one of the more mature markets,“I think the investment type is very diversified nowadays.If I look at our different client categories,it is very evenly distributed:some like trading,some like as

45、set allocation.”He says,“compared to the other Southeast Asian countries,I think Taiwan is relatively more developed in terms of investor type.”And time.The time dimension is another important factor when looking at Asian retail investor archetypes and their evolution.The overwhelming consensus from

46、 our research is that over the last two years,more and more younger investors have entered the market.Mr.Su at Sinopac in Taiwan says that retail investors are getting younger.He says,“before 2019,our average retail investor age was above 45.Over the past two years we have added more than 300,000 cl

47、ients and that average age has fallen to around 32 35.Likewise,Ms.Saw at CGS-CIMB in Singapore says,“definitely over the last two years,youre seeing the younger investors come in.”The rise in the number of younger retail investors correlates with the growth of the retail investor segment more genera

48、lly a global phenomenon,not just an Asian phenomenon.Both are the result of easier market access brought on by technology with the advent of the internet,smartphones,digital transformation,low-cost digital online trading platforms,and social media communication channels for sharing information.Both

49、these trends the growth of the retail investor segment and younger investors entering the market,have been accelerated by the pandemic.According to Syfe,a robo-advisory based out of Singapore,COVID-19 has fundamentally changed the way people invest,with digital modes becoming the mainstream way peop

50、le want to deal and manage their money.7The Empowerment of the Asian Retail InvestorOlder generations are still the cash cowsAnother interesting finding from the research conducted for this report is that despite the growth of the younger retail investor segment,it is the older generations who are c

51、ontributing the vast majority of revenues still for brokerages around the region.Ping May from CGS-CIMB says“a large percentage of our client base are Baby boomers and Gen Xs.Our largest clients are all above 45.”Meanwhile,Julien Le Noble,CEO at GTN Asia says,“while the demographics have changed and

52、 relatively speaking,we have seen more growth in the younger age segments than the middle aged and retirees,it is still the 35 to 60 age band that represents by and large the vast majority of the revenue of most retail brokers in the region.”Strategically,however,the importance of the younger segmen

53、t cannot be understated.That is because while they might not be contributing much revenue today,these individuals are going to be the cash cows of tomorrow.Looking forwards,it is therefore imperative that brokerages pay special attention to this segment and gear up to serve them in a way that matche

54、s their needs and requirements a topic that will be further explored later in the report.That was the universal consensus among the people that we spoke to for this report.Mr.Le Noble at GTN Asia sums up the general sentiment by saying,“the client base that matters today is still the same,but the cl

55、ient base that strategically matters is obviously the one that has grown the most the Millennials and the younger segment because in ten years,these individuals wont be in their first or second jobs anymore,theyll be in mid-career or management roles and they will become the key segment for retail b

56、rokers which makes them strategically very important.”8The Empowerment of the Asian Retail InvestorChanging Asian Retail Investor NeedsWhen looking at Asian retail investors preferences for markets and asset classes we can once again refer to our three dimensions and note that the markets and asset

57、classes Asian retail investors are looking to invest in will depend on where they fall on the spectrum on each of the three dimensions.It will also be somewhat dependent on which market they are domiciled in to begin with.We can,however,dig into this and make some further assertions.MarketsStarting

58、with markets and back to our three dimensions,an asset allocator,for example,will likely want to have a diversified portfolio which includes investments over numerous markets.A trader,however,is likely to focus on one or two markets to develop a deeper feeling for them.For the remainder of this sect

59、ion,we will be focusing mainly on the trader segment.It should be noted that the initial focus for most Asian retail traders will be on their domestic markets,at least to start with.However,over the last five or so years there has been an increased interest in both the U.S.and Hong Kong markets alon

60、gside nascent interest in some of the other markets across Asia.It is not surprising that there has been an increased focus on the U.S.,given that the country hosts the largest and most liquid stock markets in the world(Figure 2),which have experienced strong upward momentum over the last few years.

61、The interviewees that we spoke to for this report all said similar things on this front.Alexander Thorhauge,Head of Retail Business at Maybank Securities,Singapore(part of Maybank Investment Banking Group),for example,says,“for us,historically our clients have had a domestic bias with SGX making up

62、the majority of the volume.However,over the course of the past five years,that has changed quite a bit.SGX still remains one of the primary markets for our clients,but we have seen significant growth in other foreign markets,particularly the United States and Hong Kong.”Ms.Saw at CGS-CIMB also agree

63、s that investors tend to focus locally.She says,“without doubt,USJapanChinaUKFranceSwitzerlandGermanyCanadaAustraliaSouth KoreaTaiwan55.9%7.4%5.4%4.1%2.9%2.6%2.6%2.4%2.1%1.8%1.7%Source:StatistaFigure 2:Distribution of countries with largest stock markets worldwide as of January 2021,by share of tota

64、l world equity market valueMarket share of total world equity market value,%9The Empowerment of the Asian Retail Investorinvestors start by investing in their home markets.That is a very common behavior because thats what they are most familiar with.”She adds,“when they look overseas,everyone wants

65、to invest in the U.S.,especially in the last few years,just because its been so hot.”Traditionally,however,she thinks that in both Singapore and Malaysia,there has been strong interest in Hong Kong,because the Hong Kong stock market is one of the largest and most volatile in the region.In terms of t

66、he other markets in Asia,Ms.Saw says that there is interest in China,but she has not yet seen much activity,positing that people may be concerned about the level of volatility in the China market.She also says that SGX is receiving interest from Thai and Malaysian investors.Mr.Wong,Head of Sales,Tra

67、ding and Dealing at a Chinese broker in Hong Kong also backs up the narrative of the popularity of domestic and U.S.markets.In contrast to Ms.Saw,however,he does see activity in the Chinese markets.That is because a good portion of his clientele is from mainland China.He says that the split among th

68、eir client base who trade Hong Kong,China,and U.S.markets is 35%,35%,and 30%respectively.He does say that they do offer six other Asian markets including Singapore,Japan,Australia,and Thailand,but,he says,they do not see much activity in these.Likewise,Leo Wong,Vice President at a well-known brokera

69、ge in Hong Kong says that the U.S.market is very popular with their retail investors.He says,“a lot of people in Hong Kong love to invest in U.S.stocks.”Meanwhile,Mr.Su at Sinopac in Taiwan says that last year they had close to 400,000 active clients trading the domestic market and only 50,000 clien

70、ts trading foreign shares or investing in other wealth management products.However,the latter,he says,contributed more than 30%of Sinopacs revenue,with the U.S.accounting for more than 95%of all foreign share trading.He says that the take up for other markets like Hong Kong,China,and Japan has not b

71、een that significant.That could,however,be partially due to Sinopac only offering these markets through phone trading,rather than over their digital platform.Mr.Lee at the Fundnel Group in Singapore tells a similar story about the behavior of APACs retail traders,observing,based on their flows,that

72、most investments are domestically focused.For Singaporean retail investors,for example,he says that they will opt to buy Singaporean companies,such as Grab first.Also,he believes that Singaporean retail investors will buy U.S.companies that they have heard of such as Stripe or Airbnb.Syfe also concu

73、rs that the U.S.market continues to be the most popular foreign market for investors in Singapore,which is also consistent from what they see with their clients.Across Asia Pacific,Mr.Lee,at the Fundnel Group,says that they are starting to see Singaporean retail investors entering regional markets s

74、uch as Indonesia,but they have not yet seen much demand from them for markets like Vietnam.In Australia,he says that retail investors there will predominantly invest locally.If they want exposure to Southeast Asia,however,they will start by investing in Singaporean companies with some demand for Ind

75、onesia and Vietnam.As for markets such as Vietnam and Thailand,Mr.Lee says that these have their own vibrant retail investor markets investing locally in themselves.Mr.Kawai,at the financial information vendor in Japan also says that over the last year or two there has been a big shift by Japanese r

76、etail investors into the U.S.markets.He thinks that around 30%-40%of Japanese retail investors are now trading the U.S.Mr.Kawai says that Japanese retail investors like the well-known U.S.companies because they use their products or services in their daily lives.These include companies such as Faceb

77、ook,Tesla,Apple,and Google.The other attraction for Japanese retail investors to U.S.10The Empowerment of the Asian Retail Investorstocks is that these have gone up faster and higher than those trading in Japan.One innovation that is helping to fuel the demand for well-known U.S.stocks is fractional

78、 shares.Many of the people that we spoke to for this report said that they had seen a lot of demand for these,especially among the younger cohort that might struggle to pay$2,800 for a single Google(Alphabet)share,for example.Indeed,Mr.Thorhauge at Maybank Securities,Singapore says,“this is attracti

79、ve to investors or new market entrants who typically are younger and may not have the capital to purchase a single share but want to be able to invest in companies like Google or Amazon.”Ms.Saw at CGS-CIMB also says,“we have definitely seen a lot of demand for fractional shares,especially for stocks

80、 traded in the U.S.where these can be so expensive.Younger investors do not have the capital.”Mr.Kawai,however,says that fractional shares are not expanding in Japan for Japanese equity stocks because commissions are too small.He says that some brokerages in Japan started to offer them but at 0.55%o

81、f the trading value and a minimum of 55($0.42)charged,even though this is a higher commission than a regular stock trade,the brokerage firms realized that it was not that profitable for them.As such,it has been the new brokerage firms entering the market and the internet-only brokerage firms without

82、 branches that have been promoting fractional shares in Japanese stocks in order to attract new customers.Mr.Le Noble,at GTN Asia,thinks that brokerages in the region must now offer broader market access.Heavily retail driven markets in the region like Japan,Taiwan,and Korea,despite being very liqui

83、d,are no longer enough for retail investors,he says.He sees a very significant proportion of retail investors in these markets now trading foreign markets,with a high concentration on the U.S.over the last two years because of the growth seen there.But,he says,his clients(brokerages)are now also enq

84、uiring about broader and more comprehensive market access across the region with Vietnam and Indonesia growing in popularity,as well as steady interest in the Middle East,with for instance Qatar hosting the World Cup this year,or Saudi being interesting in terms of IPO activity.Then there is Latin A

85、merica,with clients wanting to discover what might be attractive in these emerging and frontier markets.Mr.Le Noble says that while not everybody is going to offer 80 markets on their platform,they want to have seamless and easy access to markets and asset classes in geographies that could be attrac

86、tive.A final point to make about market access is that regulatory constraints will also play a role.Indonesia,for example,prohibits cross-border trading.Indeed,Ms.Saw points out that Indonesians can only trade the local market unless they open an offshore account.Mr.Lucas makes the same point.He say

87、s,“if you go to Malaysia and Thailand,there is still a big demand to invest in international equities.It is a little bit harder here in Indonesia.There is obviously a demand for international equities,but the regulations are not as easy as they would be in Malaysia or Thailand to buy these.”Indeed,i

88、t is relatively common for HNWIs in Asias emerging markets to be served out of one of the regions main financial centers:Singapore or Hong Kong.That is likely because these clients want broader access to markets,products,and services which are not available in their home countries.That said,Mr.Lucas

89、 at Raiz Invest thinks another trend that they have seen over the last few years is a reshoring,with individuals increasingly moving away from markets like Singapore to be served domestically within their home markets.11The Empowerment of the Asian Retail InvestorAsset classes/ProductsMoving on to a

90、sset classes and products,again,the choice will depend on where across the three dimensions the Asian retail investor sits.The younger traders are likely to be interested in volatility,which cryptocurrencies(crypto)provide,the older traders are probably more interested in trading the single stocks o

91、f companies they know with perhaps a bit of leverage.The younger asset allocators are likely to be interested in a diversified portfolio with higher risk parameters,while the older asset allocators are likely to be more interested in a diversified portfolio of asset classes providing a steady,safe,i

92、ncome.The demand for crypto Indeed,when we look at younger traders,especially in the emerging markets,they are heavily into crypto.As discussed earlier in the report,this younger generation is very aspirational and want to generate wealth fast.As several interviewees pointed out,there is an element

93、of leapfrogging and financial exclusion going on in these emerging markets whereby the younger generation feels left behind.With certain avenues to generate wealth closed to them,this generation is instead leapfrogging by going straight into digital crypto assets.4 Sam Reynolds,CoinDesk,“Thailand Ba

94、ns Crypto as Means of Payment,”Mar 2022,https:/ Singh,CoinDesk,“Indias Proposed Crypto Tax Rules Likely to Become Law Thursday,”Mar 2022,https:/ Au,Eliza Gkritsi,CoinDesk,“Japans Taxes on Crypto Firms Are Leading Some to Leave the Country,”Dec 2021,https:/ Loh,FT,“Singapore clamps down on ads for hi

95、ghly risky crypto trading,”Jan 2022,https:/ Mr.Lucas at Raiz Invest makes the point.He says,“the biggest change here in Southeast Asia,such as Indonesia,Malaysia,and Thailand,has been the popularity of crypto assets and it has happened so quickly.”According to Mr.Lucas,more crypto assets trade by vo

96、lume every day in Indonesia than do traditional assets on the countrys stock market.However,many jurisdictions across Asia either prohibit crypto or impose heavy costs on it.China,for example,has outright banned it;while Thailands SEC has recently banned the use of crypto as a means of payment altho

97、ugh it did stress that it is not banning crypto trading and digital assets;Indias crypto taxation proposals meanwhile include a 30%capital gains tax,a 1%tax deducted at source(TDS),and no offsetting of losses and taxation of gifts.In Japan,founders face hefty corporate taxes when listing tokens and

98、individual investors are taxed up to 55%on gains.The Monetary Authority of Singapore(MAS)meanwhile has banned the marketing or advertising of crypto offerings to retail investors in public spaces,both physical and virtual,calling the trading of such assets“highly risky and not suitable for the gener

99、al public.”4 12The Empowerment of the Asian Retail InvestorMr.Lucas,however,says that some jurisdictions are more open than others to crypto,citing Indonesia as an example.He believes that Indonesia is leapfrogging other asset classes with retail investors going straight into crypto.It is not just I

100、ndonesia either.According to Mr.Lucas,this is happening all over Southeast Asia.He says,“for every one person,probably in the Millennial space,who looks at investing in stocks,five,including that one person,are looking at crypto assets in Indonesia.”However,he thinks that current legislation governi

101、ng crypto in the region is lacking and that regulators are moving too slowly because of concerns.He says,for example,that most countries do not have regulations that allow you to be a fund manager for crypto assets and certainly not for retail clients.This regulatory inertia,he says,is an issue beca

102、use so many young investors these days are trading on foreign crypto exchanges and are more focused on crypto assets than traditional assets.That becomes a problem for companies like Raiz Invest because they are losing eyeballs and are prohibited from serving these young investors due to the lack of

103、 regulations.Ms.Saw,at CGS-CIMB,also says that they are constrained in terms of offering crypto assets to their clients.She says,“we are very keen to offer crypto because of the demand,but due to its neither here nor there status,we made a call not to until things are a bit clearer from a regulatory

104、 front.”She does say,however,that at least in Singapore,they are able to offer crypto FX.She says,“its basically an FX pair of fiat currency against crypto and we would only do it for the big ones like Ethereum or Bitcoin.”Mr.Su,at Sinopac,in Taiwan also agrees that there is a big demand for crypto.

105、He says that lot of people are trading crypto in Taiwan now but on foreign platforms because financial institutions 5 DLA Piper,“SFC and HKMA Joint Circular on intermediaries virtual asset-related activities,”Feb 2022,https:/ are not allowed to offer it.Regulators in Taiwan,he says,treat crypto as a

106、 commodity with capital gains taxed at 20%.As pointed out above,not all jurisdictions within the region are as unwelcoming.In Hong Kong,the Securities and Futures Commission(SFC)and the Hong Kong Monetary Authority(HKMA)have recently issued a joint circular on virtual assets(VAs).This sets out the r

107、equirements for intermediaries that wish to engage in the distribution of VA-related products and the provision of VA dealing and advisory services.5 Mr.Wong at the well-known brokerage in Hong Kong says,“now brokers are allowed to distribute and deal in certain virtual assets,selling to both instit

108、utional and professional investors,although there are restrictions.”According to Mr.Wong,firms that are not licensed with the SFC are still allowed to sell VAs to retail customers at this point,however.Despite the recent ban on advertising,Singapore has also been much more welcoming.Sovereign wealth

109、 fund GIC and state-backed investment company,Temasek,have spent hundreds of millions of dollars investing in the sector.The MAS has also made it easier for foreign crypto groups to set up and service residents,albeit with restrictions including limits on transactions.Like Mr.Lucas,Mr.Lee at the Fun

110、dnel Group in Singapore wonders if cryptos popularity in Southeast Asia is a leapfrog phenomenon that is facilitating greater financial inclusion for the younger generation.According to Mr.Lee,he thinks that cryptos popularity among young investors in the region boils down to apathy,because young in

111、vestors do not relate to,or are unable to access traditional market opportunities today and essentially feel left behind.Furthermore,they believe that crypto;because it is something speculative,has a higher risk and reward payoff that could potentially 13The Empowerment of the Asian Retail Investorc

112、hange their fortunes compared to traditional investment opportunities.Mr.Lucas says,“people have seen their friends making good returns from participating so they think why not,I have nothing to lose.”The demand for equitiesEquities are still the preferred choice for retail traders.According to Mr.T

113、horhauge at Maybank Securities,Singapore,“in terms of our trader clients,it is equities that are predominantly the asset class of choice.But some of our clients do look to express their views with some leverage in the form of share margin financing,or CFDs Contract for Differences.”In terms of the i

114、nvestors on the other hand,he says,“they typically will have more diversification in their portfolio including fixed income products and mutual funds.So,it is not all about having a diversified equity portfolio,but rather do I have a diversified portfolio that is well balanced and meets my longer-te

115、rm objective.”Ms.Saw,at CGS-CIMB,also agrees that equities are the focus.She says that in terms of asset classes,equity exchange-traded funds(ETFs)remain the most popular,while not a lot of retail investors invest in bonds because of the high barriers to entry.That is where fixed income ETFs and mut

116、ual funds become an alternative for exposure to bonds,she says.Ms.Saw also sees the demand for leveraged products such as Futures,FX,or CFDs.“Theres always a certain group of more sophisticated investors who are very active in that space.While they are small in numbers,they do have a much bigger chu

117、rn,”she says.According to Ms.Saw,Singapore is a decent sized market for CFDs,while Malaysia also started offering them to sophisticated investors in 2020.In similar fashion,Syfe say global equities are the favored asset class among their investors,along with Singapore real estate investment trusts(R

118、EITs)an indication of the older investor segment dominating the market there.Likewise,Mr.Wong at the Chinese broker in Hong Kong also says that their clients are usually looking for equity trading.With a large client base from mainland China,he says these clients are usually looking to trade famous

119、Chinese names that are listed in the U.S.like Alibaba or Baidu,with which they are familiar.After that,he says they are looking for the big names such as Tesla and Microsoft.He says that most of them are looking for strong momentum stock for short term trading.He does add that some of their high-net

120、-worth clients,deemed to be professional investors,are also interested in OTC products such as bonds and funds trading or structured products.Mr.Su at Sinopac in Taiwan also says that most of their clients do equity trading and like Ms.Saw these are often looking for leverage.A lot of their clients

121、ask whether Sinopac can do borrower lending,or margin trading for U.S.shares.This is currently not allowed in Taiwan but should be by the second or third quarter of this year,according to Mr.Su.In similar fashion to Mr.Wong at the Chinese broker in Hong Kong,Mr.Su says that for foreign stocks,client

122、s like to trade the well-known names.For the domestic market,Mr.Su says that clients will chase after what is hot.For other asset classes,such as fixed income or structured products,Mr.Su says that it is mainly the older investor that is interested in these.He says that the younger investors prefer

123、to trade leveraged products such as warrants,index futures,and options,pointing to the fact that younger investors tend to be less risk averse.The demand for wider accessAnother trend that is unfolding across the region,at least in the developed markets,has been the wider access to asset classes and

124、 markets.In the past,developed markets in the region had a limited range of options available to their clients.As the retail segment grew and became more important and as competition increased,these 14The Empowerment of the Asian Retail Investorbrokerages had to start offering a wider range of produ

125、cts and markets to their retail clients.Indeed,Mr.Wong at the well-known brokerage firm in Hong Kong says,“previously brokers would offer a limited range of options to their clients.Hong Kong stock,and maybe a few other products.But now,with the increased competition from online brokerage firms,they

126、 are trying to offer a wider range of options to their clients such as Hong Kong stocks,U.S.stocks,initial public offerings(IPOs),warrants,etc.They are also allowing investors to lend their stocks to people who want to do short selling.”Mr.Wong believes that the trend is towards wider access to prod

127、ucts and markets.In terms of asset classes,Mr.Wong also says that the most common product that people are looking for is stocks,whether those are Hong Kong stocks or U.S.stocks.However,in terms of the key developing trend,he says that it is funds.He says that brokers have ramped up their promotion o

128、f the benefits of investing in funds and now people are interested in these,especially virtual asset ETFs.Mr.Kawai,at the financial information vendor in Japan,agrees that funds have become more popular.He also sees people moving into mutual funds.He thinks that it is because previously only securit

129、y brokers were allowed to sell mutual funds,but since a change in regulation,now both banks and post offices are allowed to sell these as well.As people have become more familiar with mutual funds,their popularity has increased,he says.Michael Fong,Managing Director at Charles Schwab in Hong Kong,se

130、ems to say something similar in terms for the need to offer a wider range of products and for the trend into funds.He says,“according to Schwabs Hong Kong Rising Affluent Financial Well-being Index 2021 survey,respondents have shown a more aggressive risk appetite and increased investment across a n

131、umber of products.Around two-thirds of our respondents hold stocks in their financial portfolio.Investment in funds and real estate has shown a significant increase while bank wealth management products recorded the biggest decrease as compared to 2020.”Mr.Le Noble at GTN Asia also makes the case fo

132、r a broader offering.He says,“brokerages need to have more than just one or two products.Because young people are now a lot more literate in terms of financial services products out there by virtue of being able to look at everything and anything online and on the go and so they will want more from

133、their trading or investing app.They are ready for more than just picking Tesla and Google.”15The Empowerment of the Asian Retail InvestorFunctions and tools As digital transformation,accelerated by the pandemic,sweeps across industries,the financial sector has not been left untouched.Changing custom

134、er expectations and fierce competition from digital-first players has certainly put a lot of pressure on banks.The same is true of traditional brokerages that are now facing competition from digital only players and rapidly changing expectations from their clients,especially in the younger segment f

135、or online services.If brokerages in the region are to stay relevant then they will have to come into the digital age by offering a seamless,frictionless customer journey which is increasingly taking place over an app on a smartphone.Those who do not rise to the challenge will either wither away or w

136、ill be absorbed by a brokerage that has.The writing is on the wall.Over the last ten years the shift to online has been drastic.The shift to smartphones has been even more so.Mr.Su at Sinopac in Taiwan highlights the trend.He says that up until three years ago,only 25%of Sinopacs revenue was being g

137、enerated from their online digital platform.Today that number is 80%.In an even more dramatic turn of events,Mr.Su says that around 95%of their clients are now using mobile.He says that out of close to 400,000 clients that traded actively last year,more than 350,000 of them used the mobile platform.

138、Mr.Wong at the well-known brokerage in Hong Kong also corroborates the significance of mobile.He says,“you can see that there has been a huge increase in the trend of mobile app trading.This is how the majority are trading now.”Mr.Lee at the Fundnel Group also concurs that investors are increasingly

139、 migrating from their desktops over to mobile.He thinks that this shift could have partially to do with lower ticket size.The trend is an opportunity for brokerages,and it is where they should be engaging with their customers,he thinks.Mr.Lee says,“it is going to be less engaging if its desktop just

140、 because you need to push something for the investor to come and trade.Whereas if it is on mobile,it is always with the person,so it is much easier.”Interestingly,Mr.Kawai at the information vendor in Japan says that according to data from the Japan Securities Dealers Association,while more than 90%

141、of stock trading by individual investors is done online,that only represents 25%of all trading value.In other words,large numbers of transactions are still being made through financial advisors at brokerage firms.He does however think that this will change over the next five to ten years.If brokerag

142、es in the region are to stay relevant then they will have to come into the digital age by offering a seamless,frictionless customer journey which is increasingly taking place over an app on a smartphone.Those who do not rise to the challenge will either wither away or will be absorbed by a brokerage

143、 that has.The importance of the customer journey However,it is not just about having an app.What matters is being able to offer that highly customer-centric,personalized journey through your app at scale.For a private banker with a few clients,that personalized high touch is relatively easy to deliv

144、er.But when you have tens of thousands of customers,then it becomes much harder.Mr.Thorhauge at Maybank Securities,Singapore makes the point,“the technology and the customer experience are really changing,and this is something which is very important because if you look at everything that is availab

145、le in the market today,the emphasis really is on that client journey.And making sure that it is a seamless client journey,and that it scales.”16The Empowerment of the Asian Retail InvestorMr.Le Noble at GTN is in full agreement.He says,“because that younger retail base is becoming strategically more

146、 important,brokers need to offer a journey to their customers.Today,younger customers stream online movies on demand,book taxis,order food,and do most of their banking online,all of it via increasingly simple and enjoyable customer journeys.So,when it comes to trading and investing,they need and onl

147、y will understand and expect the same.”He adds,“thats why youve got a proliferation of neo-brokers in the region following in the footsteps of Robinhood in the U.S.,which is why traditional brokerages now need to invest in digital and position themselves to remain or become relevant and attractive t

148、o these clients.”He adds,“what is also very important is to understand that a cool app is only part of what needs to make a good user experience.You need to have content on the one hand that users can consume easily and at the same time,you need to have services that are easy to access and use throu

149、gh enjoyable customer journeys.”He says,“you also need to offer a holistic trading or investing experience to your customers with a diversified product offering.If you are just offering stocks today,even at low or zero commissions,very soon you might fall short of your customers expectations.So,you

150、need to have more products.”Expanding further on the point of the importance of the customer journey for the younger retail investor,Mr.Le Noble says,“younger generations are pretty sophisticated and tech savvy.They need real time data and content that can be“Today,younger customers stream online mo

151、vies on demand,book taxis,order food,and do most of their banking online,all of it via increasingly simple and enjoyable customer journeys.So,when it comes to trading and investing,they need and only will understand and expect the same.”17The Empowerment of the Asian Retail Investorconsumed in the w

152、ay they consume content on Twitter or Tik Tok.They will also need a choice,because they move from Tik Tok to Twitter to Grab to Netflix within short time frames.”He adds,“so,they need to move around your app,they need to have gone through whats happening in crypto,how their portfolio is performing,w

153、hats the big announcement from their influencer,and watch this weeks 90-second crypto update etc.”He says,“so they need to have,within the real estate of the app,the ability to travel through.It needs to be simple,but it needs to be a journey.”Ms.Saw,at CGS-CIMB,makes a similar point about providing

154、 a simple customer journey by saying,“with younger investors,client stickiness is not what it used to be.Historically a relationship manager would be talking to a client and building up a trust relationship with them.Now your clients are talking to a machine.What keeps clients engaged with the same

155、platform?It has to be easy to use.Look at e-commerce platforms and how these have integrated themselves into peoples daily lives.”Ms.Saw elaborates further,she says,“a couple of years ago we conducted a survey among young investors in preparation for the launch of ProsperUs,a digital investment serv

156、ice specifically tailored for them,and we found that ease of investing came up top as it resonated with younger investors who are part of the digital world.”One way that brokerages are looking at scaling their services is through artificial intelligence(AI)and machine learning(ML).By collecting data

157、 on your customers,AI/ML can offer personalized,tailored content according to customers preferences.Indeed,Mr.Thorhauge at Maybank says,“I think that the power of AI and data is really the way that youre going to be able to have mass outreach and grow your client base significantly.”He says,“today t

158、his already happens in applications and services used on a daily basis like Netflix for example.So,if you have a client that is only interested in trading tech stocks in the U.S.,the ability to customize and tailor the content to the individual is becoming increasingly important.”Both Mr.Su at Sinop

159、ac TW and Mr.Wong at the Chinese broker in Hong Kong also bring up the opportunity of AI to help brokerages with customer-centricity.Mr.Wong says AI can help both in terms of generating more business and for monitoring purposes.For the latter he says,“say that I see that you always trade right at th

160、e last minute of the trading day in an attempt to push up prices,AI can help to flag that and monitor your clients trading behavior.”Mr.Su too talks about the importance of AI and mentions that Sinopac won a prize last year for their AI investor advisory service provided on their platform.Their serv

161、ice monitors stocks and alerts customers whenever there is good or bad news related to the stock or when prices surge or drop.He says that they use natural language processing(NLP)to gather information from news sources and send it to their clients.The need for speedAnother important trend has been

162、the emergence of todays now culture that has been further underpinned by digital transformation.Customers now expect everything to happen in real time and will not tolerate processes that take longer than a few minutes.Everything must be immediate,including the time it takes to open an account and t

163、he time it takes for funds to“Younger generations are pretty sophisticated and tech savvy.They need real time data and content that can be consumed in the way they consume content on Twitter or Tik Tok.They will also need a choice,because they move from Tik Tok to Twitter to Grab to Netflix within s

164、hort time frames.”18The Empowerment of the Asian Retail Investorappear in your account balance.Customers do not want to have to wait two or three days for clearance,settlement,and fulfillment.They want their money to be put to work immediately when putting it into the market and appearing in their b

165、ank accounts immediately when taking it out.Mr.Lucas at Raiz Invest makes the point.He says that the younger generation is looking for real time responses.As an example,he says,“customers in Indonesia might put say 100,000 rupiah($7.00)into our product.That is coming through a payment gateway so it

166、is pretty much instantaneous from them to us,but it doesnt go into the market for two days because of settlement etc.But in their minds,they have given you Rp 100,000 so they expect their balance to go up by Rp 100,000,even though you do not physically settle the Reksa Dana(the Indonesian term for a

167、 mutual fund)yet.”He says,“they are not really that patient,you cannot go to them and say the market settles in two days.That is not what they want to hear.”Mr.Wong,at the Chinese broker in Hong Kong,also agrees that customers are looking for everything to happen in real time.They also want to have

168、low latency,especially in the market opening period.He says,“thats when the best price usually occurs.”So,customers are looking for low latency and real time data,he says.That provision of real time data has increasingly become a hygiene factor which customers now expect for free.Mr.Wong says,“real

169、time data is a must.Our firm provides it free of charge to clients that trade the U.S.markets.”Mr.Thorhauge at Maybank Securities,Singapore also agrees about the importance of real time market data.He says,“I think data and the real time data element depends quite heavily on who you are.So obviously

170、,if you are a trader,you need real time data,because you are managing risk in real time.I would say what has changed is that the investor segment also seems to have a thirst for real time data,even if its not for the purposes of managing their portfolio risk immediately.It just allows them to have a

171、 real time view of that data.I think a lot of that is now starting to come from more and more brokerages that subsidize the data effectively for clients.So,it is becoming a bit more commoditized than it has been in the past.”A demand for program tradingAnother trend within the retail trader segment

172、has been demand for program trading tools.Mr.Wong at the Chinese broker in Hong Kong helps to explain why.He says,“because U.S.trading is in a different time zone for people out in Asia,they want to have automated functions such as stop loss,good til canceled,and one-cancels-the-other etc.,which the

173、n allows them to input the trade and go to sleep.”Mr.Su at Sinopac in Taiwan also agrees that program trading is popular.He thinks that an increasing number of young people are using it,while older people,he says,are still relying on one-click trading.Mr.Su makes the same comment as Mr.Wong at the C

174、hinese broker in Hong Kong.He says,“clients want to know whether we can offer automatic order placing,or simple condition trading.Especially for foreign shares,because they cannot monitor the market all night and so they want to automate the buy and sell functions.”Providing relevant content Another

175、 consideration for brokerages in the region is the type of content that they provide their customers with.In large part this will also be determined by where the customer falls on the three dimensions and to some extent what market they are in.19The Empowerment of the Asian Retail InvestorFor younge

176、r investors,these will by and large not want to wade through lengthy,complicated reports.Ms.Saw at CGS-CIMB says,“we also provide content for new investors on ProperUs.It is streamlined.We are trying to make ourselves easier for a new investor to start investing with us while also recognizing all th

177、e time that these investors may migrate to more sophisticated content.”Mr.Lee at the Fundnel Group in Singapore makes a similar point.He says,“it depends on ticket size for retail investors.The lower the ticket size,the lesser the information sought.”Turning to Indonesias youth,he says,“these are th

178、e most active users on Instagram globally.So,the channels that you utilize to communicate to them about opportunities have changed drastically.It is not about reaching them with lengthy research reports.It is about consumption for this newer generation,which is closely tied to ticket size.Anything a

179、bove$1,000 per trade,people might do a little bit more research and homework.But I think a lot of the ones who look at crypto are influenced,to a great extent,by discussions on Twitter threads and what they read in the media essentially.”Another important point to make about content is language.A lo

180、t of content is generated in English which can be a problem if your domestic audience does not speak English.Mr.Su at Sinopac in Taiwan highlights this issue.He says,“content is important,but it has to be in Chinese.We do try and provide our clients with content,but we are limited.If it is not in Ch

181、inese,it will be difficult for our clients to read.”Mr.Kawai at the financial information vendor in Japan makes the same point as Mr.Su about language and the availability of reliable content in Japanese.That is especially the case for Japanese retail investors buying the U.S.market.He says that it

182、is difficult to get news or ratings and finding reliable data sources can also be challenging.If a stock goes up,Japanese retail investors will want to know why but if they cannot find a reliable source of information,they will hesitate to buy or sell.As we push further into this new digital era wha

183、t is clear is that brokerages will have to invest in ensuring that they are able to keep up with rapidly changing customer expectations.Not only is this a fast-moving target,with many brokerages in the region struggling to keep up,but a number of obstacles and challenges are also making it difficult

184、 for traditional brokerages in the region to adapt.A topic that will be further explored in the next section.20The Empowerment of the Asian Retail InvestorChallenges in Serving the Asian Retail Investor6 Bloomberg,“China PBOC Official Calls Cross-Border Brokers Illegal,”Feb 2022,https:/ the retail i

185、nvestor segment becomes more important to brokerages in the region there remain a number of obstacles and challenges that these must grapple with.Fragmented regionFirst and foremost is that Asia Pacific is not a homogenous region.It is a fragmented region with each market having its own regulatory f

186、ramework,level of maturity,and language.There is no European Union or United States single market equivalent.That makes it difficult for brokerages to scale their products and services.It also means that challenges and obstacles will somewhat depend on where you are.As Mr.Thorhauge at Maybank Securi

187、ties,Singapore says,“the obstacles in servicing a Singaporean customer are relatively limited when it comes to market access and free capital movement.Whereas if you go to certain other Asian countries,then there are regulatory constraints that currently limit what you can offer to investors.”The Ph

188、ilippines,China,and Vietnam impose capital controls,for example,while other markets such as Indonesia,Vietnam,and Philippines prohibit cross-border trading,as increasingly does China.Mr.Wong from the well-known brokerage in Hong Kong says that while Chinese mainlanders are the main investors in Hong

189、 Kong,the regulations in China on the legality of Chinese investing in Hong Kong are unclear.In fact,Sun Tianqi,head of the financial stability bureau at Peoples Bank of China wrote in an article in February this year that cross-border brokers were illegal.6Ms.Saw,from CGS-CIMB,also agrees that the

190、fragmented nature of the region poses an obstacle.She highlights the level of localization required and the additional work it then takes to service the different local market segments,lamenting the lack of synergies available.That is a challenge for a company like hers,she says,that operates across

191、 markets in the region:“Sometimes you have a good idea in one market,and you want to roll it out to another,and you realize you cant.”Key localization challenges,she highlights,include differences in regulations,contrasting levels of investor maturity whereby you have sophisticated investors in Sing

192、apore versus other markets where more plain vanilla products will do,and the local language requirement.“The Thai platform you roll out has to be in the Thai language,the Indonesian platform has to be in Bahasa etc.”Mr.Kawai,at the financial information vendor in Japan,thinks that the exchange rate

193、is also a barrier and one reason why Japanese retail investors like trading U.S.stocks.He says it is because of the cheaper exchange rate that you get between the U.S.dollar and the Japanese Yen.But for other Asian currencies,he says that the banks charge such a high commission that any profits from

194、 a trade are largely eaten up in banks commissions.Tighter regulationsMr.Wong,from the well-known brokerage in Hong Kong,also says that local regulations are getting stricter.Developing a mobile app is already not cheap,he says,but now a big chunk of the apps development cost and time spent on it is

195、 on ensuring compliance.On the subject of compliance,Mr.Wong also highlights virtual assets.Because these are so new,compliance is a big issue:“You cant just copy what another broker 21The Empowerment of the Asian Retail Investorhas done to be compliant because no one knows what they need to do,”he

196、says.However,he does stress that since the SFC and HKMA issued their joint circular on intermediaries VA-related activities in January 2022,compliance requirements have become clearer.Meanwhile,Mr.Wong from the Chinese broker in Hong Kong also agrees that the regulator is tightening regulations.He h

197、ighlights data and privacy protection specifically.Customer data is useful information for brokerages that want to tailor personalized services to customers,but it gets harder when the government puts restrictions on what you can do with that data.Mr.Su at Sinopac also feels that regulation in Taiwa

198、n is not where it should be and in many areas is beginning to show its sell-by-date.He says,“there are still a lot of things that we are waiting for the regulator to relax.”As an example,he says,“in Taiwan only futures brokers are licensed to offer CFDs.If the regulator could relax the regulation to

199、 allow security houses to do CFD trades,that would be a huge help for us.”Finally,Mr.Lee at the Fundnel Group says that regulations in Singapore restrict the communications of key investment materials to retail investors.This tends to hinder investor education,which in turn limits their investment o

200、pportunities.Therefore,Mr.Lee believes that despite such regulatory restrictions,achieving financial literacy and inclusion for retail investors should be a priority.Customer expectations Another challenge for brokerages in the region is that because customer preferences are changing so fast,brokera

201、ges are having to spend a lot of time just trying to keep up with what their customers want and ensuring that it is in their app.Mr.Lucas,at Raiz Invest,talks about the speed at which change is happening.He says,“Southeast Asia is coming from a completely different infrastructure base than Western c

202、ountries,where things here are changing so fast.It is a challenge to keep up.”It is not just infrastructure either,it is also customer preferences that are changing incredibly fast.He says,“in taste,what they like,what they dont like,what products they buy,what they dont buy.”Mr.Wong,at the Chinese

203、broker in Hong Kong,says that customers now want a one-stop-shop platform.They want to open their account online in a matter of minutes and then want the platform to do everything from trading to money transfers,money exchange,and corporate actions.Specifically on the trading,he says that some platf

204、orms will provide online fund,structured product,and bond trading.It is a challenge,he says,“because you need to put a lot of effort into this and in maintaining the system.”This demand for a one-stop-shop is certainly something that resonates with Mr.Le Noble at GTN Asia.He says,“for the brokers we

205、 work with,the big hurdle we solve is the access to multi-products and the access to multi-markets that can be delivered as a complete package.”He says,“no one wants to have to connect to different brokers for different markets,then source content,then manage post-trade and back-office processes for

206、 those foreign trades,and manage corporate actions and source market data,etc.The market data,the market access,the settlement,clearing,custody,corporate actions,multi-broker management,it is all very resource intensive and so it is very expensive.That is the big hurdle.The cost of entry to broaden

207、your product offering and your geographical coverage is very high and often a barrier that cannot be overcome.That is where GTN comes in with our Platform-as-a-Service on which you pay for what you use through transactional fees.”22The Empowerment of the Asian Retail InvestorChanging mindsets is ano

208、ther obstacle,certainly for robo-advisors in the region.According to Syfe,given that the entire digital wealth management industry is still so nascent,they find that they are having to fight against traditional mindsets when it comes to money,as well as the deep trust already built with the existing

209、 established financial institutions.Right now,according to Syfe,the preferred mode for many investors is to leave their savings in the bank and do nothing with it.CompetitionLike banks,brokerages in the region are facing enormous pressure in the form of fierce competition from new entrants coming in

210、to the market.Mr.Wong at the well-known brokerage in Hong Kong says that competition in the territory has driven down prices to such an extent that some brokerages are forgoing commissions.Mr.Wong thinks this is more of a problem for the smaller-sized brokers,not so much the larger brokers,because a

211、 lot of their revenues are generated through their margin business,doing IPOs,and other products.Mr.Wong,at the Chinese broker in Hong Kong,tells a similar story.He says,“with all the competition some brokers are offering either very low or zero commission.”Elaborating further he says,“most online b

212、rokers are offering zero commission on local market traded securities,such as those listed in Hong Kong and for trading securities in the most active markets,such as the U.S.as well.”However,both he and the other interviewees we spoke to for this report emphasized that they believed that these zero

213、commission brokerages offered very little value,while they,by contrast,differentiated themselves on the quality of their services and the overall package that they offered,refusing to be drawn into a price war with zero-commission brokerages and an offering that might not be sustainable in the long

214、run.Mr.Su at Sinopac in Taiwan,for example,also agrees that pricing competition is a big concern and challenge for them.While he does not think commissions will universally go to zero in Asia any time soon a sentiment shared by all the interviewees for this report,namely because Payment for order fl

215、ow(PFOF)is not allowed in Asia,unlike in the United States he does say that they are searching for value added services that they can generate revenue from so that they are not just competing on commission rates.Examples he gives are margin trading,borrowing/lending,or other customized services or p

216、roducts.Mr.Kawai,at the financial information vendor in Japan,also agrees that monetizing value-added services can mitigate against this trend,for example,by charging interest for margin trading or share lending services.Mr.Kawai says that one reason brokerages in Japan have been keen to push U.S.tr

217、ading is because security brokers in the country,unlike in Thailand where brokers have to go through a bank,can make commission on the foreign exchange.In fact,Mr.Kawai says security brokers can actually get two commissions for U.S.stock trading,one on the foreign exchange and the other on the buy a

218、nd sell spread of U.S.stock.23The Empowerment of the Asian Retail InvestorGaps in Current Retail Offerings and ServicesAs discussed throughout the report,financial institutions across Asia Pacific are experiencing widespread disruptions caused by rapid changes in competition,demand,technology,and re

219、gulations.As their business environments become increasingly complex and volatile,it has become more important than ever for organizations to be able to respond and adapt quickly.To do so,many have embarked on digital transformation.Perhaps because competition has been greater for banks,these have b

220、een at the vanguard of this evolution,while the regions brokerages have straggled behind.Gaps in the current offerings and services for Asian retail investors are therefore largely related to the regions brokerages ability to harness digital transformation and build modern digital platforms.Critical

221、ly,for brokerages,having these modern architectures and practices such as Agile and DevOps will provide them with the agility to respond quickly to their rapidly changing customer preferences.Time to market is collapsed and collaboration with third parties reduces the cost of having to develop every

222、thing in-house.Mr.Su at Sinopac sums up the issue confronting brokerages across the region.He says,“many organizations have been through digital transformation over the past few years in Taiwan,including our own,but we are still not offering a 100%perfect service to our clients.Banks are relatively

223、more digitalized than local brokerages,so our service is trying to move closer to the banking experience.”One thing that the market does currently lack and which having the right open architectures and ecosystems could facilitiate,is a one-stop-shop where customers can have all their financial servi

224、ces such as their car loans,their savings accounts,and their portfolios,etc as a single experience.There is as of yet no consolidated view of your mortgage,your car loan,or your cash balance etc.A gap that could be filled were brokerage firms to take a more“open banking”approach to their business.Of

225、 course,gaps in the offering will also be market dependent with a split between the developed and emerging markets.Somebody in Indonesia or Vietnam is likely to provide a far longer answer to the question on the gaps in current offerings and services for retail investors than somebody from Singapore

226、.Ms.Saw makes a similar point.She says that in every market there will be underserved segments.She says it starts with having a bank account.Individuals in developed markets like Singapore are well banked,while in emerging markets like Indonesia they are less so.According to Ms.Saw,investing tends t

227、o come at a later stage,after savings,loans,and insurance etc.It is like a funnel,with active investors being a lot less,she says.According to her,CGS-CIMB wants to reach these underserved segments via a financial literacy education program.As such they are working with tertiary schools and non-gove

228、rnment organizations(NGOs)to teach people financial literacy and the importance of amplifying savings.Syfe,in a similar vein,also thinks that many in Asia continue to be underserved.They believe that the next opportunity will be to take their offerings into other markets across the region so that mo

229、re in Asia can take part in growing their wealth.Mr.Lucas at Raiz Invest also thinks that there is a massive education issue.He believes that the market has spent a lot of time addressing one side of the equation in terms of making loans accessible to individuals and SMEs,but it has not been as good

230、 at the addressing the other side of the equation,which is teaching people to“save now,buy later”instead of“buy now,pay later.”24The Empowerment of the Asian Retail InvestorOne gap that does confront brokerages in the developed markets will be around the offering of new products like virtual assets

231、where there are little to no guidelines from the regulator.Mr.Wong of the well-known brokerage says,“there has been interest in virtual assets for over two years now,but guidelines have only just been issued in Hong Kong.”Mr.Le Noble,at GTN,for his part believes that the gaps are primarily around ge

232、ographical access.He believes that brokerages in the region need to offer a lot more than just U.S.,Hong Kong,and Singapore stocks otherwise it is too limited.He says,“it is about offering geographical access and multi asset classes.This is what will keep clients interested,invested and trading.”Whi

233、le he does not think that every client will necessarily want to trade every one of these asset classes,he says,“clients will be able to see what is happening in those markets and will be happy to go back to the app and keep trading their U.S.stocks and their Hong Kong stocks while having an eye on s

234、omething thats interesting every time they go and travel through your app making their journey and experience more relevant.”Interestingly,Mr.Lee at the Fundnel Group does not agree that it is about wider access to markets.He says,“people invest in their home market first and,subsequently,wherever t

235、hey had some sphere of influence or recognition before.”Mr.Lee believes instead that the gap is actually in that the private asset class is entirely missing from retail investors portfolios.He says,“most people dont have exposure to that asset class in a diversified manner,so it is an asset allocati

236、on that is entirely missing.”He believes that ETFs built around thematic investment baskets will be the easiest way for investors to participate in private placements.Likewise,Mr.Kawai at the financial information vendor in Japan seems to also back Mr.Lees assertion that most retail investors prefer

237、 to focus on their home markets.He says,“I tried to work with my service team in Asia to generate interest in Japanese stocks,but despite globalization,stock trading in Asian markets is predominantly local.In Vietnam,they can trade only Vietnamese stock and in Malaysia,they mainly trade the Malaysia

238、n market.It is only a few rich people that are trading the U.S.or China markets.”He laments,“people in these markets are using Japanese products,but they dont seem to care about investing in Japanese stock.”25The Empowerment of the Asian Retail InvestorConclusions&the Future7 Various global exchange

239、s including Nasdaq have reported trading volumes down 10%from January 2021 to January 2022.The tumultuous beginning to markets and the economy in 2022 has slowed retail trading volume on global exchanges around the world,which perhaps is an indication of retail investors adopting a wait and see appr

240、oach to trading.7 What is certain though is that just as Spring follows Winter,the rays of light ushering in a new period of growth will return.When it does,we will see retail trading volumes pick up again as market sentiment becomes more bullish.Such bullishness will also be felt here in Asia.Accor

241、ding to Ms.Saw,at CGS-CIMB,the ASEAN region will continue to see more and more retail investors coming into the market over the next five to ten years,just by pure virtue of the regions economic growth and the continuing growth of the middle-class.Mr.Thorhauge at Maybank Securities,Singapore notes t

242、hat ten years ago,retail equity investors were not a considerably large portion of the market.Now,he says,“they are such a significant portion of the market and have grown rapidly.”Mr.Su agrees.Last year,he says,“over 12 million people in Taiwan opened a trading account out of a population of close

243、to 30 million.That means between a third and a half of the Taiwanese population is now in the market.”Mr.Su sees this trend happening all over Southeast Asia,calling out Vietnam,Indonesia,and Thailand specifically.As already discussed,the growth of the retail segment has fueled an increase in compet

244、ition as new entrants have entered the market to serve this growing client segment.That has led to a squeeze on commission rates which in turn has lowered transaction costs for retail investors,further facilitating their participation in the market.That competition is only going to intensify.Mr.Wong

245、 at the well-known brokerage in Hong Kong agrees,especially at the online brokerage level.He says,“the new brokerages,like Futu,are mainly online.They have a lot of capability here given their fintech background and are able to offer zero commissions.”According to Mr.Wong,new online brokerages in th

246、e territory spend heavily on advertising campaigns promoting their waived commission structure.Such price competition has had a knock-on effect.As a result,some brokerages are waiving commissions for both local Hong Kong market stock and U.S.stocks.For some other brokerages that incur costs from ups

247、tream brokers,that is a harder feat to accomplish but even these brokers,according to Mr.Wong,sometimes take the commercial decision to waive commissions,despite their higher cost structure.26The Empowerment of the Asian Retail InvestorMr.Su at Sinopac in Taiwan also says that they are seeing the in

248、crease in competition.That is happening on two fronts,according to him.The first is a result of the dramatic increase in foreign share trading in Taiwan.They are seeing more and more brokerage houses wanting to participate in providing foreign share trading services.But he says,”it is not that easy

249、as it requires a big upfront investment in terms of infrastructure setup and real time information provision to the trader.”The other front where they are seeing increased competition is from foreign brokerage houses coming into Taiwan to offer retail brokerage.Competition is also coming from some u

250、nexpected players.The regions so called“super apps”and digital wallets are increasingly expanding into financial services including wealth management.Many of the digital wallets now store their customers credit in a money market fund enabling a higher rate of return than a bank account while enablin

251、g their customers to use it like one for receiving and making payments.Mr.Lucas at Raiz Invest makes the point.He says,“in Indonesia we are seeing the likes of GoPay and others who have a money market fund attached to their payment gateways.A lot of retailers are looking at this as well because they

252、 have seen the success of Alibaba and the massive fund that they have generated in China.”Mr.Lucas says that these super apps and retail apps in Southeast Asia are now also moving into wealth management.Mr.Lucas feels that the banks in the region have not effectively stepped up to serve the growing

253、financial needs of Asias emerging middle-classes,so these apps are filling the void.Mr.Lucas says,“the guys that own Shopee are doing it right now.Theyre doing it in Thailand,theyre doing it here in Indonesia,they are setting up all the infrastructure to do it.GoPay has already bought the infrastruc

254、ture.Grab bought the infrastructure here in Indonesia to do it and I can imagine them now looking at Thailand and the other places that theyre in.”Mr.Lucas says,“it starts off with getting them the customers into money market funds.Its the same license,and then theyll move to other things.”One of th

255、e other big unknowns in Asia right now is the Chinese retail investor and what could happen there.Ms.Saw,at CGS-CIMB,says that while China has a large retail customer base,flows are constrained to China.Regulators in China have denounced Futu and Tiger and other well known Chinese brokers Hong Kong

256、units as being unlicensed.These brokerages have been operating in a grey area,allowing millions of Chinese investors to evade capital controls to trade shares in markets such as Hong Kong and the U.S.Ms.Saw says that if China opens up to allow flows out,there would be a surge in demand from retail i

257、nvestors there to enter foreign markets.Another interesting development will be the trend for Chinese companies to delist from U.S.stock exchanges and come back to Asia.That too could have implications for retail investors who then want to buy those stocks.How retail brokerages should be providing v

258、alue to their customers now and in the futureAs discussed throughout the report,if brokerages want to continue to provide value to Asian retail investors,they will need to have the agility to adapt and respond quickly to a rapidly evolving landscape of changing customer expectations,increasing compe

259、tition from new players,and new technology.While the Gen Xs and Baby boomers today are the cash cows for most brokerages across the region,brokerages need to keep an eye on the strategically important Gen Zs and Millennials.The latter have grown up on highly personalized digital services,delivered s

260、eamlessly anytime and anywhere.They are going to expect nothing less from their financial services provider.27The Empowerment of the Asian Retail InvestorAs Mr.Thorhauge from Maybank Securities,Singapore says,“there is very little friction in a lot of what you do today and most of it is on mobile.If

261、 you lose your iPhone,you get a new one and can port data over,you have Netflix,you have Spotify,you have apps for booking flights,hotels etc.Your entire customer journey across the spectrum of services that you use on a daily basis is very low friction and very fast and theyre doing this at scale,b

262、ecause some of these services cater to millions of clients.”He says,“and we need the same.The ability to provide that customer experience at scale,as well as leveraging tools such as the ability to personalize content and information.”Mr.Su at Sinopac in Taiwan is in full agreement:“The most importa

263、nt thing is through digital transformation that we not only provide the tools for the client,but that we understand what customers really want,then we can provide a more customized service for the client,”he says.Mr.Wong at the well-known brokerage in Hong Kong provides a stark prediction.He says,“u

264、ltimately,it boils down to the fact that you have to be digitalized.If the smaller brokers are not able to raise the funds to digitalize,they will simply be pushed out of the market.You have to digitalize if you want to stay in and compete in the market.”It is not just about digitalization either.Th

265、e name of the game today and in the future is customer-centricity.Brokerages have to become adept at serving that segment of one.Mr.Wong at the Chinese broker in Hong Kong gives us a taste of what that means.He says,“we are continuously developing and enhancing our trading system to meet our retail

266、investors expectations.If they want a one stop service,we will provide them with a one stop service.If they want a special function,we will provide them with a special function.”28The Empowerment of the Asian Retail InvestorMr.Lee at the Fundnel Group sums it up well.He thinks that it is about empow

267、erment.He says,“it is about access to something that they(retail investors)can relate to and from which they can get their financial risk-reward return profile that they seek.So,I think it is really about opening up access to more products that the new,young generations of retail investors are actua

268、lly looking for.I think we should start there.”To conclude,if brokerages throughout the region want to have that wider access to both markets and asset classes and provide a seamless customer journey then they should consider belonging to larger ecosystems that enable them to plug-and-play,as provid

269、ers or consumers of as-a-service.This would enable brokerages to offer these services to their end customers or embed them in other value chains in third-party ecosystems.Indeed,it appears brokerages are starting to think along these lines.When discussing the potential competition from super apps in

270、 the region that are using money market funds to juice the returns of their customers wallet values,Ms.Saw says,“it makes sense to see this from an ecosystem perspective,to look at how we can potentially be a part of that.”Ms.Saw also thinks that robo-advisors have done a good job in simplifying the

271、 investment journey.She says,“I think that robo-advisors are potential companies that should work with brokers like us,because a lot of them do execute through brokers behind the scenes.”Brokers today are largely standalone.If these want to survive greater collaboration could be an option to meet th

272、e needs of their customers.Ms.Saw believes that the traditional brokerages in the region must either evolve fast enough to capture clients for the long term,or potentially,the super apps could evolve to compete against them.She says,“these new entrants are coming in with easier to use platforms,they

273、 are strong in marketing,they lower the pricing,but they dont exactly offer the best products or services out there.”Traditional brokerages in the region have a chance to fight back.The question remains,will they do so effectively?Disclosures:This material is provided for informational purposes only

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