Traditional wealth management services usually target only high-income groups, and due to the services' high access threshold, provide one-on-one private services to people in this target market. With the expanding middle class and the development of the internet and artificial intelligence, robo-advisory services for a wider group of people have emerged.
According to a survey conducted by CB Insights, the robo-advisory market is currently dominated by the United States—US-based robo-advisors have received 57% of the global deal share since 2012. Betterment, one of the robo-advisory giants in the U.S., has completed seven rounds of financing with a total of $275 million. While robo-advisory business in Japan has just started, accounting for only 3 percent in market share.
At present, robo-advisors in Japan can be divided into two kinds: robo-advisors with direct investment and robo-advisors that provide consultation and advice. The main difference between the two kinds is whether they directly help investors to invest. Robo-advisors that provide consultation and advice only use artificial intelligence algorithms to provide investment advice to users and do not directly assist users in investment. Of the 21 robo-advisors in Japan at the end of July 2017, 13 provided consultation and advice services and eight provided direct investment services. Money Design was established in November 2014 as the first robo-advisor in Japan, launching its own product—THEO in May 2015.
There is limited acceptance of robo-advisors among Japanese people. According to a recent survey, 21.4 percent of Japanese people have heard about robo-advisors, 3.8 percent of those surveyed say they understand robo-advice services, and 2.6 percent of those surveyed have used robo-advisors at least once. By contrast, there are over 100 million people with demand for robo-advisors in the U.S.
Existing investment products in Japan are relatively simple to use, which also offers the possibility for the rise of robo-advisors. Compared with other countries, Japan is a country with high saving rates. Cash and bank saving wealth account for 51.5 percent of total wealth in Japan—much higher than 13.4 percent rate in the U.S.. In addition to cash savings, the Japanese also opt for insurance (28.8 percent), stock investment (10.0 percent), mutual fund investment (5.4 percent) and other investments (2.9 percent). Because Japan is a country with big savings, there is a huge market space for robo-advisors. Compared to the 35.8 percent of Americans who choose to invest in stocks, Japanese people are more cautious about investing directly in stocks, which have relatively big risks. Robo-advisors can minimize the risk of investment and provide residents in Japan with a new option for investment.
Company Details
Money Design is the largest robo-advisor company in Japan at present, and the company mainly provides robo-advisory services. THEO, the new application launched by Money Design, helps investors invest in various types of Exchange Traded Funds (ETFs) by using algorithms and artificial intelligence. Money Design received 1.5 billion yen financing in March 2015.
Mr. Kitazawa, founder of Money Design, is a registered lawyer in New York, USA and Japan. He holds a Bachelor of Laws Degree from Keio University and a LL.M. (Master of Laws) from the University of Pennsylvania. Mr. Kitazawa worked in Paul Hastings (one of the largest law firms in the U.S.) for six years as a solicitor focusing on financial and real estate laws in Japan and New York. Mr. Kitazawa also worked in Morgan Stanley for six years, mainly involved in mergers and acquisitions of real estate markets. Currently, Mr. Kitazawa also serves as a council member in Fintech Association of Japan.
Since its inception, Money Design has managed over 10 billion yen in assets and has 18,693 users. Users on the platform mainly invest in ETFs with a minimum investment amount of 10,000 yen.
Business Model
Money Design mainly provides robo-advisory services through THEO. THEO is a smartphone-based mobile application and the first mobile application in Japan that provides robo-advisory services. Users just need to answer nine questions including risk level preferences, retirement plans, views on inflation, and so on. According to the users' distinct answers, THEO will make different risk preference ratings for users and provide users with different portfolios based on their risk preferences.
THEO realizes the allocation of related assets (Hong Kong equities, US bonds, gold and oil, etc.) by investing in ETFs and adapts strategies based on the users' age and market conditions.
Before investing in THEO, the user needs to open an account in Interactive Brokers LLC. There are two options while investing—automatic investment managed by THEO and manual investment managed by the user. In the automatic investment mode, the asset management strategy is decided by THEO. THEO helps users buy ETFs, transfer positions regularly and reports the operation and proceeds to users each month. In the manual investment mode, users need to set their own asset management strategy based on THEO's recommendations, then THEO enforces those tactics and transfer positions periodically. Money Design also currently cooperates with Schwab Securities in the U.S..
Money Design also provides a 401k Pension Investment product called "MYDC", which was launched in 2017, as well robo-advisory services under "THEO +" for other financial institutions. Money Design has partnered with local regional banks including Yamaguchi Bank, Maple Bank and Kitakyushu Bank and provides technical support for them.
Money Design owns a consultant investment agency license issued by Financial Services Agency and charges the users one percent of the total management fee every year with no other hidden costs.
Development
In Japan, asset management services are typically targeted at institutional investors as well as High Net Worth Individuals (HNWIs). Money Design hopes robo-advisory services will lower the access threshold to asset management services.
Despite the prominence of fintech, companies that provide robo-advisory services face the challenge of getting customers and are therefore seeking new ways to increase their assets under management. For example, WealthNavi, a competitor of Money Design, cooperates with SBI Securities, an online brokerage giant in Japan, to reduce the customer acquisition cost. Money Design plans to both develop individual user acquisition (2C) and cooperate with financial institutions (2B) to reduce the customer acquisition cost by working with local regional banks. Money Design also actively works with other types of companies. For instance, Money Design is now working with Japan Airlines to use investment funds to carry out mileage conversion, and to mobilise the investment enthusiasm of users.
