Digital Investment Managers

To promote the digital agenda for the Malaysian capital markets, the Securities Commission Malaysia (SC) introduced the Digital Investment Management Framework in May 2017 – the first such initiative in this region. It represented a natural evolutionary step in light of Malaysia’s robust fund-management sector. This had paved the way for the advent of robo-advisors or digital investment managers (DIMs) in the domestic market.

To date, there are eight registered and licensed DIMs in the country:

Simply put, DIMs employ innovative technologies to offer automated discretionary portfolio-management services. Their core services include risk profiling, suitability assessment, asset allocation and rebalancing – all of which are automated and algorithm-driven, with minimal human supervision. DIMS can replicate many of the functions performed by traditional fund managers. They typically offer several types of risk-weighted portfolios based on their clients’ various levels of risk appetite, assigning an appropriate investment portfolio based on the input provided. Investors’ risk appetite will be assessed and evaluated, either through online questionnaires or other onlinemethods. DIMs will also undertake automated rebalancing and reallocation throughout the asset-management tenure.

The types of assets that DIMs may invest in include equities, exchange-traded funds (ETFs), mutual funds, bond funds, corporate bonds, government bonds, property/real estate, real estate investment trusts (REITs), commodities, money-market funds, currencies, cash and precious metals (e.g. gold). That said, what asset classes they actually invest in will depend on their respective investment strategies. Meanwhile, the investment portfolios recommended by DIMs are usually based on the particular client’s risk appetite (from very conservative to very aggressive), according to their responses to a series of questions before investing. They can choose to ignore the DIMs’ suggested portfolios and invest above or below their perceived levels of risk appetite.

The AUM of this segment exceeded RM1.39 billion as at end-December 2022, underpinned by a 42% y-o-y jump in the number of new accounts created. Notably, the majority of these accounts were held by men under the age of 35.

Market Development

Adoption of digitisation was among the main themes of the Malaysian capital markets in 2020. This is highlighted by the SC’s engagements with industry participants, specifically the Brokerage Industry Digitisation Group (BRIDGe) and the Fund Management Industry Digitisation Group (FMDG). BRIDGe aspires to facilitate collaboration among the regulators, the local bourse, brokers, banks and other stakeholders – with the goal of expediting the digitisation of Malaysia’s stockbroking industry. In 2019, the SC launched the FMDG to fast-track the digitisation of the fund-management industry, to enhance investors’ digital experience and improve the industry’s operational efficiency. The FMDG working group comprises members from the SC, Bank Negara Malaysia and industry members, i.e. fund distributors, fund managers and trustees.