13 - Robo-Advisor in CCB Principal Asset Management Company - Case Study
13 - Robo-Advisor in CCB Principal Asset Management Company - Case Study
13 - Robo-Advisor in CCB Principal Asset Management Company - Case Study
RUJING MENG
FANG ZHU
Fang Zhu prepared this case under the supervision of Professor Rujing Meng for class discussion. This case is not intended to
show effective or ineffective handling of decision or business processes. The authors might have disguised certain information to
protect confidentiality. Cases are written in the past tense, this is not meant to imply that all practices, organizations, people,
places or fact mentioned in the case no longer occur, exist or apply.
© 2019 by The Asia Case Research Centre, The University of Hong Kong. No part of this publication may be digitized, photocopied
or otherwise reproduced, posted or transmitted in any form or by any means without the permission of The University of Hong
Kong.
Ref. 19/631C
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19/631C A Chairman’s Decision: Launching A Robo-Advisor in CCB Principal Asset Management Company
insurance, legal or estate planning, tax services, and retirement planning. 2 , 3 Generally, the
service was not available to the mass market and mass affluent clients.
The basis of traditional wealth management was the interaction between clients and human
financial advisors. In order to enhance their existing financial situation, high-net-worth
individuals or other affluent clients sought professional advice from financial advisors who had
expertise in specific financial products or services.4,5
Robo-advisors
Robo-advisors provided personalized financial and investment advice online with minimal
human intervention.6 They combined the theory of asset allocation and portfolio optimization
with newly developed technologies such as big data and cloud computing, and produced digital
financial solutions based on algorithms.7
For robo-advisors, the process of allocating assets was fully automated, and the portfolios were
managed by algorithms and software. The investors got access to these portfolios through
online platforms. There were few human financial advisors involved.
Typically, robo-advisors collected information from clients about their financial status,
investment goals, and risk tolerance through an online questionnaire, and then used the
collected data to determine the strategy for the clients and automatically manage the clients’
assets.8,9 The fees involved for robo-advisors were the management fee and the expenses of the
investments. The management fee was charged as a fixed monthly payment fee or as a
percentage of assets.10
Most robo-advisors used exchange traded funds (ETFs) or mutual funds to build the portfolios
rather than using any individual stocks, as the client portfolio was expected to be well
diversified and passively managed. Robo-advisors typically followed a portfolio asset
allocation model based on classical modern portfolio theory (MPT).
Merits of Robo-Advisors
Compared with traditional wealth management, the following were major advantages of robo-
advisory:
Robo-advisors minimized human intervention and realized the automation of asset
allocation and investment advice. Therefore, the management fees for robo-advisors
were considerably lower than the fees for traditional wealth managers.
2
“Wealth Management,” Wikipedia, https://en.wikipedia.org/wiki/Wealth_management, accessed 7 October 2018.
3
“Wealth Management,” Investopedia, https://www.investopedia.com/terms/w/wealthmanagement.asp, accessed 3 October
2018.
4
Russ Alan Prince, “What is Wealth Management?,” Forbes, 16 May 2014,
https://www.forbes.com/sites/russalanprince/2014/05/16/what-is-wealth-management/#fa3b68b133e6, accessed 4 October
2018.
5
“Wealth Management,” Investopedia.
6
“Robo-advisor,” Wikipedia, https://en.wikipedia.org/wiki/Robo-advisor, accessed 4 October 2018.
7
Rujing Meng, “Advice on the development of robo-advisory,” 30 September 2018,
http://www.ftchinese.com/story/001079612?archive, accessed 3 October, 2018.
8 “Robo-advisor,” Investopedia, https://www.investopedia.com/terms/r/roboadvisor-roboadviser.asp, accessed 30 October 2018.
9 Kokfai Phoon and Francis Koh, “Robo-Advisors and Wealth Management,” The Journal of Alternative Investments, Winter
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19/631C A Chairman’s Decision: Launching A Robo-Advisor in CCB Principal Asset Management Company
[See Exhibit 2 for a comparison of the fees of traditional financial advisors and robo-
advisors.]
Robo-advisors significantly reduced the threshold of the minimum amounts of assets
for wealth management.11 Unlike traditional wealth management that was exclusively
designated for high-net-worth or wealthy individuals, robo-advisors required only
hundreds or thousands of USD as minimum account balance for clients who wanted to
open an account, and required a bare minimum of ongoing worth of net assets.12 This
made the robo-advisory service available to investors at all levels.
Robo-advisors avoided the investing mistakes possibly made by human wealth
managers. While humans made emotional decisions during market movements or
based on gut feelings, software was more rigid and rational, and thus exercised strict
discipline in following a long-term financial plan. The holding assets were allocated
and automatically adjusted according to clients’ risk preference, with no or very
limited human interventions.
For the low fees, low entry thresholds, and ease of use, Robo-advisors were a great solution for
beginning investors, young and soon-to-be-rich professionals, or the middle class that were
interested in a cost-effective and simple wealth management service.13,14 Taking advantage of
the vast development in technology and data analysis, robo-advisors made wealth management
an inclusive finance service that was accessible to everyone who wanted to build wealth.
Limitations of Robo-Advisors
While many middle-class investors followed the trends and tried robo-advisors, wealthier
investors were still more likely to prefer face-to-face meetings with human financial advisors
rather than automated online platforms and algorithms.15
Compared with traditional wealth management, the following were the major disadvantages of
robo-advisors:
Although robo-advisors could design personalized portfolios according to the results
of the clients’ online questionnaires, the lack of human intervention in the process of
wealth management was still critical in some cases. Unlike humans, robo-advisors were
not able to spot or contest bad decisions or uncertainty from the clients, nor sway clients’
decisions.16
The market of robo-advisors was expected to grow worldwide, but there were aspects
of wealth management that only a human could achieve at the current stage of
technological development. Robo-advisors were not capable of doing complex
financial planning that involved estate planning, tax planning, retirement planning,
insurance needs, budget planning, and saving goals. 17 Software and algorithms
allocated assets according to MPT. However, without an actual human who understood
the complexity of financial planning and could correctly input the data entry, it was not
possible for computers to calculate accurately, give tax or legal advice, do retirement
or estate planning, and provide other more complicated advice. As a result, for clients
11
Meng, “Advice on the development of robo-advisory.”
12 Ibid.
13 Anspach, “What is a Robo Advisor and How Do They Work?”
14 Eric Jansen, “When a robo-advisor is, or isn’t, the right choice,” CNBC, 5 June 2018,
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19/631C A Chairman’s Decision: Launching A Robo-Advisor in CCB Principal Asset Management Company
Mathematical Model
MPT was also called mean-variance analysis. It was a framework for asset allocation such that
the expected return of a portfolio of assets was maximized at a given risk level or the portfolio
risk was minimized for a given level of the portfolio’s expected return. MPT was proposed by
Harry Markowitz in 1952, for which he later won a Nobel Prize in economics.23
[See Appendix 1 for details of the mathematical definitions and model of MPT.]
Based on software and algorithms, robo-advisors applied the MPT model, found the efficient
frontier and capital allocation line (CAL) for the given asset pool, and constructed portfolios
along the CAL at a given level of risk according to clients’ needs.24
After the asset pool was built, robo-advisors asked clients to answer online surveys or
questionnaires to clarify their investment goals, risk tolerance, or other personal preferences.
Based on the investment goals, time period, risk tolerance, and so on, robo-advisors selected
ETFs or mutual funds from different asset classes and used the optimization algorithms based
on MPT to find the optimal portfolio automatically.
[See Appendix 2 for a flowchart of how robo-advisors conduct asset management services for
their clients.]
18 Barbara Friedberg, “Pros & Cons of Using a Robo-Advisor,” Investopedia, 27 May 2018,
https://www.investopedia.com/articles/personal-finance/010616/pros-cons-using-roboadvisor.asp, accessed 02 November
2018.
19 Ibid..
20 Betram K. C. Chan, “Classical Mathematical Models in Financial Engineering and Modern Portfolio Theory,” 15 September
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19/631C A Chairman’s Decision: Launching A Robo-Advisor in CCB Principal Asset Management Company
The performance of the optimal portfolio was constantly and automatically monitored by the
software, and the portfolio was rebalanced according to the algorithm to ensure the performance
was within the threshold set by the clients. If the performance deviated from the threshold, the
optimization algorithms were reapplied to find a new optimal portfolio that was consistent with
the clients’ needs.
In 2008, robo-advisors first appeared on the US market. Betterment in New York and
Wealthfront in Silicon Valley were launched during the 2008 financial crisis, targeting middle-
class clients.27 The initial purpose of launching robo-advisors was to rebalance the assets of the
investors within target-date funds. Robo-advisors provided investors a way to manage their
passive, buy-and-hold investments through a simple online interface.28, 29
Robo-advisors gradually gained popularity as they were easy to access, cost efficient, and
transparent. Following Betterment and Wealthfront, more FinTech startups in the US, such as
Personal Capital, FutureAdvisor, SigFig, also opened robo-advisory services, though they were
still trying to capture market share and their business were not yet profitable.30
In 2015, traditional wealth management companies and investment banks began to participate
in robo-advisory services by launching their own robo-advisors or by mergers and acquisitions.
In March 2015, Charles Schwab launched Schwab Intelligent Portfolios. In May 2015,
Vanguard launched Personal Advisor Services. In August 2015, BlackRock announced the
acquisition of FutureAdvisor, an online financial advisory firm. In 2016, Goldman Sachs
acquired Honest Dollar, an online management platform for retirement plans. 31 Traditional
financial institutions quickly established leading positions in the robo-advisory market because
of their accumulated experience in financial investment and broad customer base. By August
2018, Vanguard and Charles Schwab were the top-two largest robo-advisors with assets under
management (AUM) of USD112bn and USD33.3bn, respectively.32
[See Exhibit 4 for a list and details of major robo-advisors in the US.]
[See Exhibit 5 for number of robo-advisory firms launched in the US from 2008 to 2015.]
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19/631C A Chairman’s Decision: Launching A Robo-Advisor in CCB Principal Asset Management Company
During the FinTech boom, robo-advisors also gained ground outside the US. In 2012, Nutmeg
in the UK and Moneyfarm in Italy were founded, followed by the fast growth of the robo-
advisor markets in Germany and other European countries.33 By the end of 2017, there were
around 100 robo-advisors in Europe, located in the UK, Germany, Italy, France, Spain,
Netherlands, Switzerland, and so on. 34
Two markets dominated the rising trend of robo-advisors in Europe: the UK and Germany.
While the British market of robo-advisors had the most AUM, the German market had the
fastest pace of growth.35 The relatively harmonized legislation of Germany made it a good
continental market in Europe for FinTech startups. 36 Moreover, the low interest rates also
encouraged the development of German robo-advisors. German investors were traditionally
strong savers. As the interest rates became negligible or even negative, their demands for
inexpensive and convenient investment services increased.37
In Asia Pacific, robo-advisors were initially slow taking off, but grew rapidly after 2016. Youyu
Robo Advisor by Yufeng Capital (YF Capital), Aqumon by Magnum Research, and Chloe by
8 Securities were launched in Hong Kong, 38 and Smartly, StashAway, AutoWealth were
founded in Singapore39; they targeted clients from the younger generation with their digital,
low-cost wealth management solutions. Other robo-advisors were founded in Taiwan, Japan,
South Korea, India, and Australia.
In mainland China, the robo-advisor industry was still at initial stages and was expected to
grow.40 Between 2016 and 2018, traditional financial institutions in China began to establish
robo-advisory platforms. China Merchants Bank launched the robo-advisor service
Machinegene Investment (Mojie); CreditEase launched Toumi RA; Ping An Securities
launched the AI Smart Stock Investment; and China Southern Asset Management launched
Super Zhitoubao.41 Xuanji by Pintec, a Beijing-based robo-advisor, gave asset allocation advice
using a full portfolio of onshore mainland China mutual funds. In 2018, Xuanji expanded its
fully automated portfolio service in Asia.42
The domestic retail investor base presented an enormous opportunity for the robo-advisor
industry in mainland China. There, the robo-advisor market gained much interest, yet also
raised regulatory concerns. In April 2018, the China Securities Regulatory Commission (CSRC)
called out two Chinese robo-advisors, Licaimofang and Latte Bank, as they failed to obtain
33
Gerrard Cowan, “Robo advisers start to take hold in Europe,” Wall Street Journal, 4 February 2018,
https://www.wsj.com/articles/robo-advisers-start-to-take-hold-in-europe-1517799781, accessed 22 October 2018.
34 Ibid.
35
Ibid.
36 “Berlin startup Cashboard raises €3 million as German fintech momentum continues,” Business Insider, 23 November 2016,
http://uk.businessinsider.com/cashboard-funding-digital-space-ventures-german-fintech-momentum-2016-11, accessed 21
October 2018.
37
Cowan, “Robo advisers start to take hold in Europe.”
38 “Robo Advisors in Hong Kong,” FinTech News Hong Kong, 27 November 2017,
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proper mutual fund sales licenses. The CSRC also required investment disclosure from robo-
advisory companies to ensure that their clients fully understood the strategies and risks.
According to Statista,43 the total AUM for robo-advisors globally amounted to USD397,972mn
by 2018, and the estimated growth rate of AUM for robo-advisors from 2018 to 2022 was
38.2%, which resulted in a total AUM of USD1,452,637mn by 2022.
By June 2018, the US, China, the UK, and Germany were the four leading regions that had the
largest amounts of AUM worldwide, and the total amounts of AUM were expected to grow in
the following four years.
Although the AUM and number of users were predicted to grow in the future, the rate of growth
in AUM was expected to decrease constantly.
[See Exhibit 11 for the charts of AUM, AUM growth rate, and number of users of robo-
advisors worldwide.]
In 1998, there were only six asset management companies in China, all closed-end funds. In
2001, the first open-ended mutual fund was established in China. In 2004, the first ETF was
introduced in China.46 With the development of the industry, Qualified Foreign Institutional
Investors (QFII) entered the Chinese market in 2002, and Qualified Domestic Institutional
Investors (QDII) were allowed to invest in the overseas market in 2007. Chinese fund
management companies established offshore subsidiaries overseas. Banks, insurers, and
security firms joined the asset management industry, stimulating innovations in product design
and operational capabilities.
[See Exhibit 12 for a glance at the development of Chinese asset management industry from
1998 to 2018.]
As the industry thrived in the past 20 years, the number of asset management firms reached 132
in 2018. By 2018, the range of products in Chinese market included money market funds,
closed-end funds, open-end mutual funds, ETFs, fund of funds (FOF), and so on.
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[See Exhibit 13 for a summary of the Chinese asset management industry during the 20-year
development.]
By the first quarter of 2018, the 10 largest asset management companies in China controlled
51.3% of the country’s market share.47 Major industrial players included E Fund Management
Company (E Fund), China Asset Management Company (China AMC), and China Southern
Asset Management Company (China Southern). These major players were the primary
beneficiaries of the expansion of the industry. In the meantime, banks, tech firms, and other
institutions brought new forms of competition and products into the Chinese asset management
industry. Market players and investors in China expected a more diversified, innovative, and
sophisticated market.
[See Exhibit 14 for a list of the top-20 asset management firms in China and their AUM by Q2
2018.]
The retail investors in China were often referred to as “gamblers” or “punters.” A number of
Chinese investors speculated on short-term market movement and focused on immediate
returns. They lacked the sophistication of strategic decision making. Therefore, their acceptance
of the passively managed investment strategies over a long term was limited.
The majority of Chinese ETFs invested in domestic equities. During the first quarter of 2018,
the three equity funds, the China Southern CSI 500 Index ETF, the E Fund Chinext ETF, and
the Huaan Chinext 50 ETF were the top-three asset gainers. Additionally, there were seven
cross-border ETFs, the QDII ETFs, listed in China’s stock exchanges.51
By the beginning of 2018, the total AUM of China’s mutual fund industry was around
USD1.6trn. Money market funds (MMFs) accounted for nearly 60% of market share.52 Since
47
KPMG, “Asset Management in China.
48 “In China, It’s Global Money Managers vs. Mom and Pop,” Bloomberg News,
https://www.bloomberg.com/news/articles/2017-09-27/in-china-it-s-global-money-managers-vs-mom-and-pop, accessed 14
November 2018.
49
Piotr Zembrowski, “Are China’s ETFs taking off?,” Fund Selector Asia, 12 July 2018, https://fundselectorasia.com/are-chinas-
etfs-taking-off/, accessed 14 November 2018.
50
Ibid.
51
Ibid.
52
“China money market funds’ AUM hits new record in November,” Asia Asset, 29 December 2017,
https://www.asiaasset.com/news/CMMF_AUM.aspx, accessed 8 March 2019.
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19/631C A Chairman’s Decision: Launching A Robo-Advisor in CCB Principal Asset Management Company
the establishment of China’s first online MMF, Yuebao by Tianhong Asset Management, a
subsidiary of Alibaba, in 2013, the MMF market in China had a significant boost. By October
2017, the AUM of Yuebao had increased to over USD216bn.53
In 2017, CSRC approved asset management firms to launch a fund of funds (FOF),54 and market
watchers expected a prosperous future for the products in the Chinese market. As a multi-
manager investment tool, an FOF was able to offer investors a variety of investment strategies
with more diversified risk.
[Exhibit 12 lists all the major events during the past 20 years of the asset management industry
in China. See the column for 2005 in Exhibit 12 and examples of other fund management
companies established by Chinese commercial banks following the management guidance of
“Establishment of Fund Management Companies by Commercial Banks.”]
CCB Principal was established as a joint venture of China Construction Bank Corporation, one
of the four biggest banks in China, and Principal Financial Group, the US insurer and pension
manager.56 China Construction Bank had a 65% stake; and Principal Financial Group, 25%.
The domestic power producer China Huadian Group held the remaining 10%.57
As a subsidiary of China Construction Bank Corporation, one of the top-four commercial banks
in China, CCB Principal had a natural advantage in customer sources and financial support
from the bank. The scale of CCB Principal grew steadily after its establishment in 2005. By the
end of 2018, the total AUM of CCB Principal was over USD94.29bn,58 which was among the
top 15 in the Chinese asset management industry. With more than 60 products with different
risk profiles, CCB Principal provided asset management services to nearly 7.5 million clients
in China.59
53 Ibid.
54 “China’s super rich are wary toward AI ‘robo advisors,’ preferring human instead,” SCMP, 4 April 2018,
https://www.scmp.com/business/banking-finance/article/2140129/chinas-super-rich-are-wary-towards-ai-robo-advisers,
accessed 13 March 2019.
55 “Guidance from CRSC”, CRSC, 26 February 2014,
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CCB Principal was money market funds, due to the support of its major shareholder, China
Construction Bank.
According to the interim report of CCB Principal in 2018, the income from the management
fees for money market funds was as high as USD151.79mn, which accounted for nearly 70%
of the total income of the company.60 However, CCB Principal’s performance in other types of
funds like equities or bonds was less superior, especially compared with its industrial peers. By
the end of the third quarter of 2018, the AUM of equity assets of CCB Principal was USD4.6bn,
which accounted for only a small portion of its total AUM.61
Equity Funds
Based on industry research and fundamental analysis, CCB Principal offered equity funds
invested in various industries, including information technology, internet, energy, environment,
medical and health care, infrastructure, and service industries. Its asset pool contained large,
mid-, or small-cap, and value and growth stocks.62
Bond Funds
CCB Principal was the industry leader in fixed-income investment strategies and accumulated
a broad customer base. It offered open-ended and closed-end funds and its asset pool included
government bonds, certificates of deposit in central banks and commercial banks, corporate
bonds, convertible bonds, short-term financing bonds, bond repurchases, and asset-backed
securities63.
ETFs
CCB Principal offered ETFs tracking domestic Chinese indexes as well as overseas indexes,
covering various regions and asset classes. The indexes its ETFs tracked included the following:
Domestic Indexes: CSI 300 Index (China Securities Index 300), CCTV 50 Index, SZSE
Fundamental 60 Index (Shenzhen Stock Exchange Fundamental 60), SZSE 100 Enhanced
Index, CSI 100 Index, SSE 50 Index (Shanghai Stock Exchange 50), MSCI China A Inclusion
RMB Index, CSI SWS Non-ferrous Metal Index, CSI Intelligent Manufacturing Index and
Second-board Market indexes.64
Oversea Indexes: S&P Global BMI, MSCI Emerging Market Index, MSCI ACWI Energy Net
Total Return Index, MSCI ACWI Material Net Total Return Index.65
60 Ibid.
61 Ibid.
62 Ibid.
63 Ibid.
64 Ibid.
65 Ibid.
66 Ibid.
10
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Fund of Funds
A fund of funds (FOF) was an investment strategy in which a fund invested in other types of
funds instead of investing directly in securities of fixed-incomes, equities, currencies products,
and so on.67
For the FOF, exposures to different asset classes and various fund categories were wrapped into
one fund. Through FOF strategies, investors achieved broader diversification, thus less risk
compared with investing in the underlying assets directly. The major shortcoming of FOFs was
the high operating fees compared with other funds with single managers. Investors typically
had to pay twice the expense as multiple funds and managers were involved in the process.68
In September 2017, CCB Principal became one of the six Chinese asset management companies
that were allowed by CSRC to launch FOFs. 69 The Fuzeantai Mixed FOF issued by CCB
Principal was made up of both equity funds and bond funds with a performance benchmark of
20% in CSI 800 Index and 80% in ChinaBond Composite Index.70 In addition, CCB Principal
was in the process of launching pension FOFs to cater to investors with different risk appetites.71
Were robo-advisors suitable for China? What would be the future of robo-advisors in China
and in the global financial market? Mr. Sun and his team needed to answer these questions
before deciding whether to offer robo-advisory as a core service of CCB Principal.
11
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Source: https://www.statista.com/statistics/329646/largest-wealth-management-companies-usa-by-value-
of-client-assets/.
12
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The most common way for a wealth manager to charge its clients was by charging a percentage
of the assets that were under its management. Typically, the management fees had sliding scales
that reduced the percentages charged for wealthier clients.
The average fee for a traditional financial advisor was around 1.02% of AUM annually for an
account of USD1mn, about USD10,200 per year.72 The asset-based fees decreased as the AUM
increased. The management fee for a USD50,000 account was around 1.18%, but down to 0.5%
when the AUM reached USD10mn.73
There were other financial advisors who charged their clients fixed fees. These typically applied
to financial planning or consulting services. 74 Advisors who completed special projects for
clients charged hourly fees.75
Robo-advisors charged a much lower fee compared with traditional wealth managers. The
typical fee for robo-advisors was about 0.25% to 0.5% of AUM annually.76
72
“How to Cut Financial Advisor Expenses”], Investopedia, https://www.investopedia.com/articles/personal-
finance/071415/how-cut-financial-advisor-expenses.asp, accessed 08 October 2018.
73 “How much does a financial advisor cost?,” Smart Asset, 2018, https://smartasset.com/financial-advisor/financial-advisor-cost,
13
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How clients were differentiated according to their level of wealth and complexity of
investments.
Sources:
The chart is from: https://www2.deloitte.com/content/dam/Deloitte/lu/Documents/financial-
services/lu-emerging-models-digital-wealth-advisory-04102017.pdf
14
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19/631C A Chairman’s Decision: Launching A Robo-Advisor in CCB Principal Asset Management Company
77 Betterment has two service options: Betterment Digital, its legacy offering, has no account minimum and charges 0.25% of
assets under management annually. Customers in this offering can consult financial advisors via in-app messaging. Betterment
Premium provides unlimited phone access to financial advisors in exchange for a 0.40% fee and $100,000 account minimum.
78 To enroll in Schwab Intelligent Advisory, you need a minimum of $25,000, though these assets may be held across multiple
Schwab Intelligent Advisory accounts. The minimum for each account is $5,000.
79 0.89% for account balances under USD1mn; for clients that invest USD1mn or more: First USD3mn: 0.79% of account
balance. Next USD2mn: 0.69% of account balance. Next USD5mn: 0.59% of account balance. Over USD10mn: 0.49% of
account balance.
15
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WealthSimple WealthSimple 0.50% for account balances 0 ETFs of stocks and bonds, cash
less than USD100,000 and accounts
0.40% for account balances
of USD100,000 or more
16
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19/631C A Chairman’s Decision: Launching A Robo-Advisor in CCB Principal Asset Management Company
40 37
Number of companies
35
30
25
22
20
15
11
10
6 5
4 4
5
0
2008 2009 2010 2011 2012 2013 2014 2015
Year
Source:https://www.statista.com/statistics/755626/number-of-digital-advisory-companies-
launched-usa/.
17
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19/631C A Chairman’s Decision: Launching A Robo-Advisor in CCB Principal Asset Management Company
101
100
AUM in billion USD
80
60
40
27
20 13.5
10.2
3.9 1.5 1.1 0.55 0.53 0.19
0
Source: https://www.statista.com/statistics/573291/aum-of-selected-robo-advisors-globally/.
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19/631C A Chairman’s Decision: Launching A Robo-Advisor in CCB Principal Asset Management Company
Sources:
https://www.nutmeg.com/our-fee
https://www.nutmeg.com/how-we-invest
https://www.nutmeg.com/nutmegonomics/nutmeg-investor-update-january-
2018/
https://www.moneyfarm.com/uk/
https://www.liqid.de
http://www.wealthhorizon.com/our-fees/
https://www.vaamo.de/konditionen
https://www.vaamo.de/anlagekonzept
Data were as of September 2018.
80 Account balances of GBP20,000 or less, 0.7%, between GBP20,000 and GBP100,000, 0.6%, between GBP100,000 and
GBP500,000, 0.5%, over GBP500,000 0.4%.
81
Account balances of GBP20,000 or less, 0.7%, between GBP20,000 and GBP100,000, 0.6%, between GBP100,000 and
GBP500,000, 0.5%, over GBP500,000 0.4%.
82 Account balances less than EUR100,000, 0.79%, otherwise 0.49%.
19
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19/631C A Chairman’s Decision: Launching A Robo-Advisor in CCB Principal Asset Management Company
Sources:
https://www.stockspot.com.au
https://www.8securities.com/en/robo/
https://www.aqumon.com/en/
http://www.yff.com/en/wm/
83
Accounts under SGD10,000, 1%, accounts over SGD10,000 but no more than SGD100,000, 0.7%, accounts over
SGD100,000, 0.5%.
84 First SGD25k, 0.8%;
USD500,000-2,499,999: 0.528%;
more than USD2.5mn: 0.396%
more than USD2.5mn: 0.396%
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19/631C A Chairman’s Decision: Launching A Robo-Advisor in CCB Principal Asset Management Company
http://fintechnews.hk/tag/youyu-robo-advisor/
http://fintechnews.hk/3284/roboadvisor/robo-advisors-hong-
kong/
https://www.autowealth.sg/
https://www.smartly.sg/
https://www.stashaway.sg/
Data as of September 2018.
21
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19/631C A Chairman’s Decision: Launching A Robo-Advisor in CCB Principal Asset Management Company
Company Robo Advisors Fees (annually) Account Minimum Major Investment Instruments
China Merchants Bank Machinegene (Mojie) 1% annually RMB 20,000 Actively managed funds in China
China Southern Asset Zhitoubao The platform was free Different portfolios according to the risk
Management (SuperIntelligent RA) preferences of clients. Products included ETFs of
bonds, equities, money market, etc.
CreditEase Toumi RA USD 500 ETFs of US, European and emerging markets,
including asset classes of fixed-income, equities,
real estates and commodities
Harvest Fund iGoldenBeta The online platform was free; Depended on the Products of Harvest Fund Management
Management clients needed to pay brokerage clients' portfolios
fees
JinRongJie Lingxi Robo-Advisor The online platform was free; RMB 500 to 5,000 ETFs of various asset classes from different
clients needed to pay fees for depending on the regions
brokerage, redemption and clients' assets
management from the security
companies
Sources:
https://www.jiemian.com/article/2023426.html
https://1.jrj.com.cn/zntg/
http://ixuanji.com/
http://help.igoldenbeta.com/hc/kb/article/1039907/
Data as of September 2018.
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Source:
Robo-advisors worldwide, Statista, 2018, https://www.statista.com/outlook/337/100/robo-
advisors/worldwide.
EXHIBIT 11: AUM, AUM GROWTH RATE, AND NUMBER OF USERS OF ROBO-
ADVISORS WORLDWIDE
Chart 1: AUM of Robo-Advisors Worldwide
AUM of Robo-Advisors
1,600,000
1,452,637
1,400,000
1,200,000 1,147,996
in million USD
1,000,000
859,209
800,000
604,748
600,000
397,972
400,000
244,128
139,580
200,000
0
2016 2017 2018 2019 2020 2021 2022
Year
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19/631C A Chairman’s Decision: Launching A Robo-Advisor in CCB Principal Asset Management Company
70.0% 63.0%
60.0%
52.0%
50.0%
42.1%
in percent
40.0% 33.6%
30.0% 26.5%
20.0%
10.0%
0.0%
2017 2018 2019 2020 2021 2022
Year
96,159.3
100,000.0
in thousand
80,000.0 69,622.0
60,000.0
45,203.6
40,000.0
25,778.3
20,000.0 12,945.8
6,105.6
0.0
2016 2017 2018 2019 2020 2021 2022
year
Source:
Robo-advisors worldwide, Statista, 2018, https://www.statista.com/outlook/337/100/robo-
advisors/worldwide.
24
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19/631C A Chairman’s Decision: Launching A Robo-Advisor in CCB Principal Asset Management Company
In December 2002, the National Council for Social Security Fund awarded
mandates to external managers for the first time.
2003 First batch of Sino-foreign joint venture fund managers. Hwabao WP, HFT
Fund, CPIC Fund, Invesco Great Wall were the first four established joint
venture fund management companies in China. Fullgoal attracted capital
injection from Bank of Montreal.
2004 The Securities Investment Fund Law was enacted. First ETF introduced in
China (ChinaAMC China 50 ETF).
2005 First batch of banking fund management companies entered the Chinese
market, including ICBC Credit Suisse, Bank of Communications Schroder,
UBS SDIC, CCB Principal, etc.
2013 China's first online money market fund, Yuebao, was launched.
2018 The People's Bank of China (PBOC), the China Banking and Insurance
Regulatory Commission (CBIRC), and CSRC jointly issued the "Guidance
Opinions Concerning Standardization of Asset Management Operations by
Financial Institutions,” aiming at a more stable, transparent, and
regulated asset management market.86
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19/631C A Chairman’s Decision: Launching A Robo-Advisor in CCB Principal Asset Management Company
Sources:
https://assets.kpmg.com/content/dam/kpmg/xx/pdf/2018/06/celebrating-20-years-of-am-in-
china.pdf
http://www.chinabankingnews.com/2018/04/30/five-key-points-understanding-chinas-new-
asset-management-rules/
https://zhidao.baidu.com/question/181743999652255804.html?qbl=relate_question_3
http://fund.jrj.com.cn/archives,040001.shtml
https://baike.baidu.com/item/%E7%A4%BE%E4%BF%9D%E5%9F%BA%E9%87%91
https://baike.baidu.com/item/QFII%E5%88%B6%E5%BA%A6
http://fund.chinaamc.com/english/INVESTMENTPRODUCTS/QDIIFund/GlobalSelectiveFu
nd/indexfund/ChinaSMEETF/China50ETF/index.shtml
http://fund.jrj.com.cn/2018/08/10164124938255.shtml
http://fund.sohu.com/20121031/n356232321.shtml
http://www.csopasset.com/tc/home
Source:
https://assets.kpmg.com/content/dam/kpmg/xx/pdf/2018/06/celebrating-20-years-of-am-in-
china.pdf.
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19/631C A Chairman’s Decision: Launching A Robo-Advisor in CCB Principal Asset Management Company
EXHIBIT 14: TOP-20 ASSET MANAGEMENT FIRMS IN CHINA AND THEIR AUM, Q2 2018
Source:
http://fund.jrj.com.cn/2018/07/02142524756506.shtml.
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Definitions87
Considering the expected return and the level of risk of a portfolio consisted of 𝑛 risky assets
over a period.
For the component asset 𝑖, 𝑖 = 1, … , 𝑛, 𝑤𝑖 was the weight of the asset 𝑖, i.e., the proportion of
asset 𝑖 in the portfolio. The return of asset 𝑖 was denoted as 𝑅𝑖 , and the sample standard
deviation of the returns of asset 𝑖 was denoted as 𝜎𝑖 . For the asset pair (𝑖, 𝑗), 𝑖 = 1, … , 𝑛, 𝑗 =
1, … , 𝑛, the correlation between the returns of asset 𝑖 and asset 𝑗 was denoted as 𝜌𝑖𝑗 . For 𝑖 =
𝑗, 𝜌𝑖𝑗 = 1.
Denote the portfolio return as 𝑅𝑝 . The expected return of the portfolio E(𝑅𝑝 ) was the
proportional weighted sum of the expected return of each component asset 𝑖 in the portfolio,
i.e.:
𝑛
E(𝑅𝑝 ) = ∑ 𝑤𝑖 E(𝑅𝑖 ).
𝑖=1
The level of risk of a portfolio was measured by portfolio return’s variance 𝜎𝑝2 and volatility
𝜎𝑝 . The portfolio return variance was a function of the correlations of the component assets, for
all asset pairs.
𝑛 𝑛
𝜎𝑝2 = ∑ ∑ 𝑤𝑖 𝑤𝑗 𝜌𝑖𝑗 𝜎𝑖 𝜎𝑗 .
𝑖=1 𝑗=1
𝜎𝑝 = √𝜎𝑝2 .
Assumptions
Investors were risk averse:
Given two portfolios that offered the same expected return, investors would choose the less
risky one. Therefore, an investor was only willing to take on more risk if the corresponding
portfolio had a higher expected return. In contrast, an investor who wanted higher expected
returns had to tolerate higher risk.
The trade-off between risk level and expected return existed for all investors. However, every
investor had his individual risk preference profile. Different investors would evaluate the trade-
off differently based on their risk aversion level.
87
Modern Portfolio Theory, https://en.wikipedia.org/wiki/Modern_portfolio_theory.
88
“Efficient Frontier,” Investopedia, https://www.investopedia.com/terms/e/efficientfrontier.asp,
https://www.investopedia.com/terms/e/efficientfrontier.asp, accessed 12 November 2018.
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19/631C A Chairman’s Decision: Launching A Robo-Advisor in CCB Principal Asset Management Company
risky assets, the efficient frontier was the upper boundary of the set. Each point on the line
represented89 an efficient portfolio.
90
In the return-risk space as shown above, portfolios that lay below the efficient frontier were
sub-optimal as they did not give high enough return for a given risk level.
89 Ibid.
90 Source: InvestintAnswers.com.
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19/631C A Chairman’s Decision: Launching A Robo-Advisor in CCB Principal Asset Management Company
91
The tangency portfolio was the most efficient risky portfolio with the risk-free asset available.
With the risk-free asset and the tangency portfolio which was composed by risky assets,
investors could choose to move their holdings along the CAL. By shorting the risk-free asset,
i.e. borrowing money at the risk-free rate and investing the proceeds in additional holding of
the tangency portfolio, investors could increase the leverage of their position. By selling some
holding of the tangency portfolio and holding more risk-free assets, investors could decrease
the leverage of their position.92
91
Source: Wikipedia.
92
Glyn Holton, “Capital Market Line”, Glyn Holton website, 5 June 2013,
https://www.glynholton.com/notes/capital_market_line/, accessed 14 November 2018.
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19/631C A Chairman’s Decision: Launching A Robo-Advisor in CCB Principal Asset Management Company
Source: https://www.cutter.com/article/how-robo-advisors-manage-investment-portfolios-
495656.
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