Chat with Fintechs Michele Ferrario CEO and Freddy Lim CIO from StashAway
Robo Advisors, Superman and Iron Man, and StashAway
We had the good opportunity to speak with the good folks at StashAway and were blown away by their passion and walk away energized by the chemistry between the “odd” mix of co-founders from very different worlds. Whoever says that Superman can never work with Iron man, be prepared to eat your words! (…someday…)
StashAway was founded in September 2016 and has since grown quickly into a well established player in the robo-advisor wealth management scene. It last secured a Pre-Series A funding of SGD 3 Million in May 2017 from the Rozario family led by ex-Temasek executive Francis Rozario.
What is Robo-Advisor and why are the machines and AI all the rage now? According to Deloitte and other analysts, the AUM (Asset Under Management) to be managed and supported by Robo-Advisors is estimated to hit USD 2.2 to 3.7 Trillion in 2020, and by 2025 this will rise to over USD 16 Trillion. In case, you are not familiar with a Trillion, 1 Trillion is 1,000 Billion, or 1 Million Million. (@@ it’s ok..im dizzle too trying to count the zeroes…)
So, we got the rare chance to speak to the creators of the Robo-Advisors at StashAway and we definitely tried our best to squeeze the secrets out of them.
Chat with Fintechs: Michele Ferrario CEO and Freddy Lim CIO from StashAway
TFAGeeks: Hi Michele and Freddy, thank you for speaking to us and agreeing to share more about StashAway, the journey and future plans. For a start, what do you think is the main differentiating factor between StashAway and your competitors in the market? And why do you think your clients prefer StashAway over others, or is it necessary a binary choice?
Michele: StashAway has assembled a team with decades of experience in investing and in tech; this is not only true looking at the 20-people strong full-time team, but also when you look at our Advisory Committee and Board of Directors. This depth of experience translates in a few key differentiating factors:
1) Our asset allocation framework, ERAA (Economic Regime-based Asset Allocation), brings to anybody the sophistication usually available only to institutional investors. We have designed ERAA to maximize medium-term returns while minimizing short-term volatility, and we do this across economic cycles through portfolios constructed across many different asset classes. This is a major differentiator, as most managers do not diversify asset classes, and look at the markets, not the economy, failing to take into account the fact that different asset classes perform differently in different parts of a given economic cycle (white paper on our framework)
2) We built our platform in house, with the goal of providing a world-class experience to our customers; we have assembled a sizable team of experienced, very strong engineers to ensure that our continual investments in our technology will keep improving our customers’ experience.
3) We hold a CMS license for Retail Fund Management, issued by the MAS. This means we answer to the highest standards in regulatory compliance (audit, capital requirements, among other requirements). StashAway’s legal entity holds the license directly.
Freddy: StashAway views it as our mission to be the gatekeeper for clients in both good and bad times. The team here has decades of experience, has been through various economic cycles, and is very focused on risk management.
TFAGeeks: Robo-Advisers, Robo-Portfolios, all these may sound futuristic to many investors on the streets, even some Bankers have not seen a real Robo-Advisor. How does StashAway explain its work and the fundamental concepts to your clients? What are the common questions and concerns that you have heard or encountered?
Michele: The term robo-advisor is confusing, and in fact, we don’t like to use it too much.
The overall logic is that today’s technology can make intelligent investing accessible to anybody through a simple and cost-effective platform. By using digital channels, we can offer personalized portfolios to thousands upon thousands of customers without compromising quality as we scale, and we can apply the most sophisticated frameworks to build those portfolios. Rest assured, behind the investment framework and the platform there is a large team of actual people (not robots!!), and customers can talk to us by calling in or writing to us – a real human being will respond!
Additionally, the way we built the business model transforms one fundamental aspect of the traditional client-advisor relationship: Our interests are fully aligned with our customers’, as we only make money out of the fees we charge to our customer (unlike traditional financial institutions receiving commissions for the sale of a product, and therefore having incentives that may not be aligned with the customers’.)
Freddy: StashAway delivers intelligent, transparent and cost-efficient solutions to every saver and investor out there. The platform is still designed, maintained, monitored, and constantly improved by a large team of dedicated people! As has been famously demonstrated in international chess, the best performance comes from marrying the best of human minds with technology!
TFAGeeks: Do you think that Robots or Algos are better than human? And what is StashAway’s image or ideal situation of the future that awaits us all in the investment and banking industry?
Michele: We are not proposing a choice between robots and human. There are certain operations that are better made through technology, and others that are better done by people. Nobody thinks that ATMs (or robo-bankers, as they were once called!) should have not replaced human tellers in giving cash to bank’s customers: No one will argue that ATMs are faster, cheaper and more precise than humans. The same logic applies to a number of processes in investment management.
Our goal is to focus human contributions where it adds specific value, and use technology to automate tasks that are repetitive in nature and can be done more efficiently and effectively by a computer.
Freddy: I firmly believe the combination of algorithms and human is the key for consistent success in wealth management. Without guidance from human in setting the right objectives, priorities and boundaries, algorithms can run amok! When deployed properly, algorithms can automate tasks and replicate the thought processes of experienced fund manager(s) with great consistency!
TFAGeeks: The both of you, and your other co-founder Nino, belong to very different worlds, background and experiences, but have come together to create this innovative and meaningful product. How and what attracted you to collaborate and partner together? What are the strengths and maybe if both of you may divulge, are the conflicts or challenges you guys face when working together?
Michele: Our co-founding team is made of 3 people, Freddy, Nino and myself. Each of us bring depth of experience in different areas, and that is exactly the reason why we decided to work together. Our dynamics are incredibly positive because (i) we each respect the fact that each of us know more than the others in certain areas but (ii) we are happy to discuss at a high level of detail and challenge the status quo if needed; additionally, and very importantly, (iii) we share a set of core values – we could have met at college and be friends since forever! We have not yet faced conflicts among us, and the reason is that we embrace the “idea meritocracy” logic that Ray Dalio has been speaking about lately, where we are open to disagree and discuss any topic, without turning the discussions into personal clashes, but focusing on the topics at hand.
Freddy brings to the table more than 15 years of experience investing across different cycles, with a substantial part of his career managing billions of institutional money across asset classes. Nino has more than 13 years of experience building successful consumer technology products in different sectors and geographies. I have close to 15 years of experience, splitting my career in a first part where I have advised financial institutions as a McKinsey consultant, and the second part where I have been building consumer internet companies while at Rocket Internet.
Freddy: With logical thinking, open minds, and genuine personalities, people with different backgrounds coming together can produce wonders! If I were to do this alone or only with people with the same background as mine, I would most probably be designing something in the B2B space. Great news is the diverse backgrounds of the founding team in e-commerce and technology have empowered an investment person like myself to conceive something much more interesting and impactful for all consumers!
TFAGeeks: Some have opined that Fintechs are disruptors and are competitors to current players like Banks and Financial Instituition, what are your views on this perception of a zero-sum game? Do you reckon that Fintechs will take over Banks, is that StashAway’s aims?
Michele: Our aim is to empower people to build their wealth in the long term. The wealth management industry will need to evolve quickly to make this happen, as today a lot of financial institutions are charging incredibly high fees for unsophisticated service and unpersonalized products, de facto reducing significantly the wealth accumulation potential for most people.
I don’t see this as a zero-sum game, I think the industry will evolve and some players will lead this evolution while others will be left behind. The winners will be the customers. In a few years, people will not talk about “FinTech” anymore, as the Financial Services industry will use technology more and across the board until it becomes the industry standard
Specifically in Singapore, the wealth management industry has done a poor job at helping clients invest their savings: 36% of Singaporeans’ financial wealth is in cash. This means that people are not making their money work for them, and may face issues when they’ll want to retire. StashAway exists to empower people to manage their savings more effectively, and achieve their financial goals with peace of mind.
Freddy: The Fintech industry is certainly leading the charge in delivering solutions that empower consumers! In some ways, the more Fintechs can achieve, the greater the motivations for traditional institutions to improve too! Consumers, households, and savers will ultimately benefit immensely from these and StashAway is committed to an integral part of this movement!
TFAGeeks: Do you have any advice for aspirants who wish to join a startup? What are the qualities apart from the technical hard skills, that he/she should possess?
Michele: Different companies will require different hard and soft skills, irrespective of the age of the company. In general, I would say that to work in younger companies, people need to feel “ownership” more than in larger settings, considering their jobs not in terms of hours spent in the office, but rather in terms of deliverables. Going the extra mile is a pre-requisite if you want to be successful in a young company. The day does not end at a certain hour, it ends when things are done, and deadlines are every day, not every quarter.
Freddy: I would speak more specifically for aspirants from Finance looking to join or start a Fintech company. In my view, it is not a light decision to make in one’s career, and I would expect the candidate to demonstrate their thought process in arriving at such a decision.
Firstly, candidates need to analyse what the job description really means and highlight “what you can bring to the table”. It would also be good to demonstrate your understanding of how the role fits into the overall picture the Fintech firm is moving toward.
Be sure to make a sincere introduction of yourself, your motivations and/or aspirations. I am personally interested in the recreational activities or hobbies of the candidate as these help me gauge where their passions truly lie, among other attributes.
Beyond the core competency required of any role, the key attributes I would personally look for in a candidate:
1) Ability for “Learning to Learn” – Innovative industries are always changing and roles in a Fintech firm could evolve over time. So we don’t expect people to always know the answer in their day to day work but candidates with the effective skills for “learning to learn” are definitely valuable assets.
2) Resilience – Being a part of a team that is building a new business (or even industry) is not for the faint-hearted. Strong passion and great determination are the necessary ingredients for success.
3) Cultural Fit – For the candidate’s own benefit, always ask the founder(s) what kind of culture they are trying to instil in their firm. And then ask if you think you can fit in. In the event the founder(s) lack(s) or is(are) unable to articulate their vision for building a strong identifiable culture for their firm, it’s time for the candidate to think twice.
TFAGeeks: In three words, how would you describe StashAway?
Michele & Freddy: Intelligent, transparent, convenient.