Regarding technology, the goal should not be to use the most difficult tech available to do something. Instead, the ultimate goal should be to make it simple and cost-effective. Michele Ferrario, co-founder and CEO of Stashaway, aims to achieve this with the robo-advisory platform.
“The goal is to make the journey as simple [and clear] as possible, educate as you go through the journey, make it faster, and make sure that it doesn’t take too much time. That’s driven by a continuous, relentless effort to relook at the interface and see what can be done better,” he says in an interview with The Edge Malaysia.
This does not always lead to more tech and features being added. There are times when removing features is the best course forward. Sometimes, simplicity comes from reducing things, Ferrario adds.
When Stashaway was launched, portfolios offered on the platform had to be domiciled in the respective countries. This means that a user who invested in a specific portfolio would be either in the US, London, or whichever region the portfolio was in. Now, users can invest across different markets, enabling the robo-advisor to offer more exposure. Furthermore, he notes that the fractionalisation of exchange-traded funds (ETFs) allows users to build a diversified portfolio across 10 or more classes from as little as RM50 ($14.16).
“We have money coming in daily [and] a rebalancing effort that happens automatically. Because we combine orders from many customers, we reduce costs and can offer low [prices] to our clients. We call it the trading system,” adds Ferrario.
The elephant in the room
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Asked about how generative artificial intelligence (Gen AI) will impact investments, Ferarrio believes AI is still a distant prospect.
“I don’t believe we should use AI to build and manage portfolios. We are long-term investors. We need to help people build asset allocation [and] manage it with a long-term view. Given the long-term view, there is no real advantage in building a black box with AI that makes those asset allocation decisions. It’s different if we were day traders,” he says.
Stashaway uses a fully systematic algorithmic approach to asset allocation. Machine learning and AI techniques are used to solve complex mathematical problems. However, Ferrario says these AI techniques do not fall under the Gen AI category.
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In any case, he adds that every decision made regarding an investment should be explained. Stashaway’s core portfolio is managed by Economic Regime-based Asset Allocation (ERAA), which uses macroeconomic data to minimise risk and maximise returns for every portfolio through economic cycles.
Four pillars guide ERAA’s asset allocation decisions: regime-based asset allocation, risk control, valuation gaps and managing asset-specific risk. Additionally, four economic regimes are identified: good times, inflationary growth, stagflation and recession.
ERAA keeps customer risk profiles constant throughout these regimes by systematically reallocating assets when the economy or markets substantially change.
Ferrario concedes that there are use cases where Gen AI could prove beneficial. This is for the interface used for clients. “You could argue that Gen AI makes the user experience different, where you have a conversation with the platform, rather than [a] click option [one, two, three or four]. This is something we need to discover. We are running some tests and small-scale experiments and seeing what people like and don’t like.”
Ferrario says that he has had bad experiences with bots, but Gen AI could improve their performance. “I mean, with Chat GPT, that’s [like] a real conversation.”
Although Gen AI tools could make customer support agents more productive and efficient, they should be the ones facing the problem. “You could argue that we can transform much of our customer support into Gen AI-enabled ones. My perspective is that we shouldn’t. We are a digital platform, and 99% of our client engagement with us happens digitally in a self-serve platform. But, the day you want to talk to us, you should be able to,” he says.
Demystifying investing
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At the heart of it, simplicity, cost-effectiveness, and the intelligence of the investment framework are the three pillars of the value proposition that StashAway aims to offer its clientele.
Ferrario continues: “We make sure we’re not helping you gamble as brokerages do, [where they tell you to] buy Tesla [stocks] today or buy Nvidia [stocks] tomorrow, [and to] buy it all. That’s gambling and not investing. We demystify investing and make it a longer-term structure process. Every month, you put aside [a certain amount] and invest in a portfolio or a set of portfolios with the right risk level for you.”
Of course, financial education needs to be addressed. “Financial education in the region is quite low. It’s a bit of a vicious cycle where historical players can sell products with unfair fee structures or with unclear risk-reward profiles because the general understanding of these products [are not there],” says Ferrario.
The Stashaway Foundation aims to address financial literacy through a wide range of personal finance and investing courses and events. “Education is an important topic, and that’s something that we’ve been investing a lot of time and effort into.”
Ferrario adds that people will want more control over their investments moving forward. This is because the idea of a self-serving platform is becoming more accepted. “In this region of the world, things have been moving slower than elsewhere. For instance, the penetration of ETFs is extremely low, driven by [a] lack of distribution. I think the wind on that side [of things] is very strong. You will see passive investments becoming much more prevalent than they [are at the moment]. I think digital distribution will be a significant enabler of that happening.”
This article first appeared in The Edge Malaysia
