Navigating Prosperity: Unveiling the Future of Wealth Management in the Philippines
The future of digital wealth management in the Philippines Urs Bolt, WealthTech Advisor; Derick David, Senior Product Designer
This article explores the growing wealth of Philippines’ citizens, the demand for broader financial services, and the current state of the country’s wealth management sector. The article delves into demographic challenges, the evolving wealth landscape, key players in wealth management, and the rise of new digital platforms. It also introduces the WealthTech landscape, emphasising the need for customer-centric solutions, new investment products, and the importance of a risk-based approach in long-term wealth creation. Lastly, it discusses the significance of user experience design in driving successful financial technology companies and concludes with a glimpse into the future of digital wealth management in the Philippines, focusing on technology-driven personalised services and the potential for growth in the mass affluent segment.
As a rapidly growing emerging country with a large number of unbanked and underbanked citizens, the Philippines presents a promising landscape for fintech and digital banking solutions to narrow the financial inclusion gap. The economic growth is leading to increased wealth of its citizens, which creates demand for broader access to financial services including wealth advice and solutions.
This thought piece delves into the current state of the wealth management sector in the Philippines, examines the key players, explores trends, with a special focus on the emerging affluent class, and envisions the future development of the country’s dynamic wealth industry. Additionally, we’ll take a closer look at technological aspects, emphasising the role of WealthTech in shaping the future of wealth management.
Demographic and societal challenges in the Philippines
The demographics of the Philippines play a significant role in shaping its wealth management market. Here are some key demographic facts and figures:
- The Philippines is one of the most populous countries in Southeast Asia, with over 115 million people as of 2022.1
- The country has a youthful population, with a median age of 25.7 years, representing a growing workforce and a vast potential customer base for wealth management services.1
- Urbanisation is on the rise, with a significant portion of the population already residing in urban areas such as Metro Manila. Urbanisation often correlates with increasing income levels and the accompanying need for financial services.
- Income inequality exists in the Philippines, with a substantial portion of the population belonging to lower-income segments.
- Despite economic growth, a significant portion of the population remains unbanked or underbanked.The basic banking needs are currently being filled by digital banking solutions offered by fintechs, neobanks and traditional banks.
- The Philippines is a major recipient of remittances from overseas Filipino workers (OFWs). Remittances play a crucial role in the country’s economy and financial decisions.
In summary, Millennials (age 26-41) and Gen Z (age 18-25) together account for over 56% of the population, i.e. over 46 million Filipinos.2 This is a large mass affluent segment which will create a continuously rising demand for wealth services. The demographic factors underscore the importance of offering diverse and easily accessible wealth management solutions that cater to the varying financial needs of the population.
The current wealth landscape in the Philippines
The wealth foundation in the Philippines is still low but is growing at a faster pace compared to many other markets.3 In 2023, the projected Assets under Management (AuM) in the wealth management sector are expected to reach US$ 121 billion.4 The forecasted annual growth rate (CAGR 2023-2027) of almost 4% suggests an estimated market volume of US$ 141 billion by 2027. The wealth management market in the Philippines is characterised by a diverse customer base. Historically, this sector primarily served high-net-worth individuals and ultra-high-net-worth clients. However, recent years have seen a shift towards catering to mass affluent customers, driven by an expanding middle class with increasing disposable income.
Fintech adoption is on the rise across Asia, indicating that affluent investors are increasingly open to digital financial solutions.5 In particular, Asia is experiencing significant growth in fintech adoption, reflecting the changing preferences and needs of investors.
Key incumbent players in wealth management
In general and from a global perspective, the Philippines’ wealth sector is lagging behind financial centres like Singapore or Hong Kong. The country’s wealthy are served by both local and international players, operating offshore. Some prominent local incumbents include financial institutions like Metrobank, Union Bank, RCBC, Security Bank, BPI Asset Management & Trust Corporation, and BDO Private Bank. These institutions have a strong presence and a long history of serving high-net-worth clients in the country.
The rise of new players and platforms
In recent times, we’ve witnessed the emergence of new players and digital platforms in the Philippines. Payment wallets and super-apps (like the Chinese WeChat), which offer a wide range of financial services, have gained popularity. These platforms leverage technology to provide convenient and accessible financial services to a broad audience. Examples include the e-wallets GCash and Maya (which is also a bank), along with neobanks such as GoTyme, Tonik, and the digital banking platforms of traditional banks incl. Uno Digital Bank, UBx among others. With the introduction of the Philippine Identification System (PhilSys5) national identity scheme, the onboarding of new customers has become even easier.
The new digital banking services are built on modular architectures, cloud-based solutions, and APIs for seamless integration. The modularity, frequently built upon microservices, enables adaptability and scalability, aligning with the modern standards for fintechs and digital banking platforms.
In emerging markets, digital banking penetration has grown an average of 52%, with between 30% and 50% of those that have yet to use digital banking likely to do so.6 Consumers now are more than ready to make the switch to neobanks, or digital banks. With a comparatively low rate of banking penetration, the Philippines is predicted to adopt neobanks at the fastest growth rate across the globe.7
The WealthTech Landscape
WealthTech solutions are still in their nascent stage in the Philippines. While there is a proliferation of fintech apps, super-apps and neobanks in areas like payments, remittances, e-wallets, lending, savings, and trading, digital wealth management solutions are relatively limited when it comes to their offering. In the latest Philippines Fintech Map 20238 only 10 fintech startups are listed under the WealthTech category. They are mostly product-centred, not customer-centric, i.e. the digital platforms and apps are primarily distribution channels for online trading and investment products. The existing WealthTech apps don’t prioritise investors’ long-term and sustainable wealth building in line with their personal situations.
In the mid-term, we can expect continued growth of digital wealth solutions along with the expansion of super-apps and neobanks. The market may also experience a greater adoption of open banking, open wealth, and open finance standards.9 This move towards standardisation enhances collaboration among product and service providers, interoperability and easier decision making for consumers. In the long term, artificial intelligence (AI) will be pivotal in providing highly personalised and efficient wealth management services.10
Meeting the needs of mass affluent customers
The demand for wealth management services for mass affluent customers is on the rise. Affluent investors in Asia are increasingly seeking personalised and tech-savvy solutions that align with their financial goals and expectations. They expect digital platforms to offer a seamless and user-friendly experience.11
Considering the demographics (as described above), digital natives are now the largest segment for consumer products and services. With their affinity towards social media and the use of (super) apps via smartphones, digital platforms will become the key access, communication and distribution channel for wealth advice and investment solutions.
Asian wealth management firms are facing challenges in meeting digital services satisfaction levels among affluent clients.12 Understanding the clients’ needs will require a holistic customer experience. This indicates a growing need for innovative and customer-centric solutions in the wealth management sector which will lead to embedded finance and wealth solutions. We will elaborate on this further below.
New investment products and asset classes
In recent years, new investment products and asset classes have gained traction, not only for the ultra-wealthy segment but also for mass affluent investors. The fintech boom, platform business models and digitalisation have made it possible to widen access to investment vehicles previously unavailable for affluent investors.
Investment products which emerged for the wider public in recent years include:
- Crypto assets, including Bitcoin and other cryptocurrencies.13
- Private assets, including private equity and debt, and real estate.14
- Exotic investments, such as luxury items and collectibles.15
According to Bitcoin Insider, approximately half of Asia’s affluent investors had some form of digital assets in their portfolio in 2022. The Philippines are globally ranked 6th on the latest crypto adoption index by Chainalysis, promising further potential for the increased adoption of the aforementioned investment products.16
These options provide affluent investors with diversified opportunities to grow their wealth beyond traditional investment instruments. But many of the new investment products not only represent upsides but also pose significant risks which might not necessarily be suitable for small-scale investors. Wealth management providers will thus be instrumental in helping customers weigh the risks and benefits of these investments.
A risk-based approach is key for long-term wealth creation
To reflect the needs and expectations of the growing class of affluent investors in the Philippines, the know-your-client procedures have to become centre stage to assure customers are invested in suitable and appropriate products. A common approach is the risk profiling of investors.
Investor risk profile factors and related elements
Assessing and understanding investors’ risk profiles emphasises the importance of considering factors such as risk tolerance, capacity, and time horizon when developing investment strategies.17
Tailoring investment approaches to individual risk profiles is key to providing successful wealth management services. Therefore, the move away from a product distribution to a customer-centric advisory approach is a fundamental and urgent necessity. Most short-term traders lose their money, especially inexperienced investors who often follow a herd instinct. Academic research going back 20 years consistently shows day traders and other very active traders have difficulty making money over anything more than short periods of time.18
Princeton professor Burton Malkiel, author of “A Random Walk Down Wall Street,” stated that “serious investing involves broad diversification, rebalancing, active tax management, avoiding market timing, staying the course, and the use of investment instruments such as ETFs, with low fees.”
Minimising churn, i.e. the frequent buying and selling of assets, can reduce costs for both investors and wealth managers while aligning with regulations aimed at investor protection. Such an approach follows a similar model to what private banks and wealth management firms already provide to wealthy and ultra-wealthy investors.
To empower the growing community of mass affluent investors in adopting a disciplined and long-term investment strategy, a new set of tools is required. As observed in more developed financial markets, achieving financial wellness often focuses on community engagement among people facing a similar situation, educational initiatives, and improving financial literacy. These factors naturally create a need for wealth solutions designed to facilitate the steady accumulation of wealth over time.
A great user experience wins hearts and minds of the affluent clients
Today, the difference between successful financial technology companies and not-so-successful ones is not the complexity of their products or services, but the way they design them. A banking app with a confusing language and cluttered interface can lead to a loss of revenue. Meanwhile, a banking app with a clear language and organised interface is less likely to frustrate users, making them more likely to complete their goals. In other words, great user experience design results in good business.
Why is this important? The current state of the wealth management landscape in the Philippines is similar to the US early 2010s. The systems and technologies are present, but there’s a lack of creative solutions, product stability, and innovation in user experience design. It’s not the lack of solutions per se, but the lack of well-designed solutions that meet the needs of less affluent Filipinos. If we can design solutions that work for the less affluent, the more affluent will benefit as well.
From a design perspective, local solutions tend to lack in quality, coherence, and attention to detail. From a product perspective, they can be glitchy, unintuitive, and slow. Both can influence the user’s experience. For instance, both Maya and Gcash have well-designed apps but sometimes suffer from product issues like slow loading, in-app errors, and glitches. While it’s more of a product issue rather than design, it does heavily influence the user’s experience.To learn how to design great wealth management services in the Philippines, we have to study those who walked the same path. In the United States, there are two apps who popularised retail investing and wealth management – Robinhood and Acorns.
Robinhood19, now with 23 million customers, democratised stock investing by making it easy and affordable for anyone to start trading with just $5. Before that, investing was perceived as complicated and expensive for many. Their app is known for its elegant and easy to navigate interface with a simple sign-up process. This made it a convenient choice for new investors looking to learn and gain experience and who may be intimidated by traditional wealth management platforms. Moreover, Robinhood offers a series of introductory guides to investing, explained in simple language helping investors learn as they invest.
Then, there’s Acorns20, an app that popularised the concept of robo-advisor and spare-change investing. It enables users to invest their spare change from daily purchases to a diversified portfolio of stocks, ETFs, and bonds. If you pay $1.76 for a coffee, $0.24 gets automatically allocated into your portfolio. The app doesn’t require prior knowledge on investing and wealth management as it gives personalised advice and insights based on the user’s investor profile. Like Robinhood, Acorns offers educational resources on investing and wealth management.
The financial world can be a daunting place, full of jargon and complex concepts. But Robinhood and Acorns have made investing fun, cool, and accessible to a new generation of investors – inspiring them to build wealth and achieve their financial goals.
Every product with a goal to democratise retail investing and wealth management must answer the following questions: How can we make complex financial products simple and accessible to everyone? Can we simplify it even further? Can our grandmother or a 12-year-old kid use it? Both Robinhood and Acorns have revolutionised retail investing and wealth management like we’ve never seen before. Creative solutions along with an extremely stable and reliable product and great user experience design is what made them a popular phenomenon. They turned something complex into something simple that can be done in a few taps.
To improve product success:
- Use familiar and clear language
- Design friendly and easy-to-navigate interface
- Ensure the end-product is reliable and stable
- Make it accessible for everyone
- Provide 24/7 customer support
- Incorporate bite-sized learning
- Apply gamification strategies
Design isn’t just a role or a one-time task. it’s the entire product, culture, and identity of a company. Companies who invest heavily in design have a competitive edge in a crowded landscape.
The future of digital wealth management in the Philippines
Given the economic expansion and the demographic development, the outlook for the Philippine wealth market appears exceptionally bright. Technology will play a pivotal role in delivering wealth advisory services for a broader audience.21
Implementing a customer-centric service model, which has been a complicated and time-consuming undertaking in the past, has been considerably simplified by modern technology. Concepts like mass customisation, data-driven advice, goal-based investing and the combination of digital and human interaction, often referred to as hybrid advisory, all converge for the benefit of customers. Considering the increasingly common use of fintech and digital banking apps, embedded wealth management has a substantial potential to broaden the availability of wealth services.22 Harnessing the power of data enables the delivery of highly personalised services, effectively steering the industry away from its conventional product-centric approach and towards tailored, needs-based offerings. AI is becoming increasingly integral, assisting in risk profiling, investment management, and customer interactions. The role of AI will expand further, making wealth management more data-driven and responsive to individual needs. Despite these significant advancements, a regulatory environment that lags behind other markets is impeding the rollout of wealth solutions for mass affluent investors in the Philippines and requires improvement.
All these developments will establish independent wealth advice as a separate discipline from the traditional product distribution channels. With the right combination of technology and human capabilities, the Philippines has the potential to offer high-quality, cost-effective wealth management services, especially for the mass affluent segment.
- Data Commons: datacommons.org/place/country/PHL?category=Demographics
- GMA Network, 2022: gmanetwork.com/news/topstories/nation/827752/millennial-voters-outnumber-other-generations-in-eleksyon-2022/story
- Economic growth drives wealth creation in the Philippines, Asia Money, 2023: asiamoney.com/article/2bgkgynv7rn7lpz8o3aio/southeast-asia/economic-growth-drives-wealth-creation-in-the-philippines
- Statista, 2023: statista.com/outlook/fmo/wealth-management/philippines
- PhilSys National ID registration, PNA, September 2023: pna.gov.ph/articles/1209037
- McKinsey, 2023: mckinsey.com/industries/financial-services/our-insights/on-the-verge-of-a-digital-banking-revolution-in-the -philippines
- The Payments Association, 2023: thepaymentsassociation.org/article/neobanking-index-the-state-of-neobanks-in-2023/
- The Fintech Philippines Report 2023, Fintech News Philippines, 2023: fintechnews.ph/fintech-philippines-report-2023-2/
- “The Future of Asia Wealth Management,” Accenture, July 2023: accenture.com/us-en/insights/capital-markets/future-wealth-management-asia-reimagining-engagement
- “Predictions for the wealth management sector in 2023,” Urs Bolt, More than Digital, 2023: morethandigital.info/en/predictions-for-the-wealth-management-sector-2023/
- “The Future of Asia Wealth Management,” Accenture, July 2023: accenture.com/us-en/insights/capital-markets/future-wealth-management-asia-reimagining-engagement
- Wealth Management in the Philippines – the State of the Nation, Hubbis, 2022: hubbis.com/article/wealth-management-in-the-philippines-the-state-of-the-nation
- “The Great Convergence ‒ The Institutionalisation of DeFi,” Urs Bolt, More than Digital, 2022: morethandigital.info/en/the-great-convergence-the-institutionalisation-of-defi/
- “Predictions for the wealth management sector in 2023,” Urs Bolt, More than Digital, 2023: https://morethandigital.info/en/predictions-for-the-wealth-management-sector-2023/
- Example for artworks investment platform, Masterworks: masterworks.com/
- Global Crypto Adoption Index 2023, Chainalysis: chainalysis.com/blog/2023-global-crypto-adoption-index/
- “Investment Risk Profiling: A Guide for Financial Advisors”, CFA Institute, 2020: https://rpc.cfainstitute.org/en/research/reports/investment-risk-profiling
- CNBC, 2020: cnbc.com/2020/11/20/attention-robinhood-power-users-most-day-traders-lose-money.html
- Robinhood: robinhood.com/
- Acorns: acorns.com/
- “Technology-enabled wealth advisory is the future for Hong Kong’s affluent investors,” StanChart, August 2023: https://av.sc.com/market-outlook/publications/managing-wealth-using-the-latest-technology.pdf
- “Embedded Wealth Management: The Next Big Disruptor?”, Kanv Pandit, WealthBriefing Asia, 2023: https://www.wealthbriefingasia.com/article.php?id=199059
This article was written by Urs Bolt in cooperation with Derick David.