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Investor Strategy News – Legg Mason buys into digital advice business

Legg Mason Global Asset Management has diversified its business with an entry in Asia and Australia to the digital advice market through the purchase of a minority interest in Hong Kong-based technology provider Quantifeed.

Legg Mason and a Quantifeed client, Cathay United Bank, the largest bank in Taiwan, have joined in the latest round of funding for the expansive company. The firm was launched by an Australian technology expert, who worked for banks such as Deutsche, Ross Milward, and a quantitative strategist, Alex Ypsilanti, in 2013. It already has nine clients in Asia and is now looking to expand in Australia and New Zealand.

Quantifeed, provides sophisticated bespoke business-to-business systems for institutions to provide advice and tools for their advisor clients and, if required, their end investors.

John Robson, Quantifeed chief commercial officer, is reluctant to use the term “robo advice” for his offering because of its connotations of a business-to-consumer model with limited adaptability and, often, a link to a fixed menu of ETFs to invest in.

He says of the two founders that they have a pedigree of working in banks and understanding the culture – what works and doesn’t in the advice channel. “They decided to build a platform which enabled advisors to have a better more efficient relationship with their end-investor clients,” he says.

“All across Asia, as in Australia, the industry is in transition, whereby most customers don’t have access to advice. Arguably, it is primarily the wealthy who do, and perhaps they don’t need it as much.”

Robson, also an Australian, was speaking last week during a trip to Australia to speak with prospective clients. He was accompanied by James Verner, Legg Mason’s London-based head of alternative distribution strategies for international business, and Andy Sowerby, the Melbourne-based head of Legg Mason for Australia and New Zealand.

Verner and Sowerby declined to reveal the equity arrangement with Quantifeed but said the firm had engaged in a partnership which did not involve pushing their own funds onto the platform. Quantifeed operated on an open-architecture basis whereby the institutional client decided on what investments could be offered to satisfy the system’s proposed individual solutions and what firms provided them.

Verner said: “We have been working on Legg Mason’s strategy for intermediaries, what they needed into the future and what we were able to provide. We have been investing a lot in technology. The crucial thing, we think, is to have an open-market play, not a Legg Mason play [for the advisor and investor].”

Legg Mason acquired another digital advice provider, Financial Guard, in the US in 2016 but did not want to import what was basically an American offering to Australia. The firm believes that it is important that such a provider has good local knowledge, such as for tax, social security and cultural/lifestyle differences, as well as local support for the institutional clients. The global manager was considering its options for the UK market, Verner said.

The platform has both advisor interfaces and end-customer interfaces as modules. Verner said: “We wanted something which made it all intuitive and frictionless for the end client. But the more the technical user, and their advisors, will want more from the system, such as governance frameworks, workflow management and portfolio stress testing. So the platform is designed to offer different interfaces and tailored dashboards. But they are built off a proven core system architecture.”

Sowerby said that institutions wanted fewer and larger relationships with the firms they dealt with. The Quantifeed deal was an added string to Legg Mason’s bow. He believes the system is of interest to big super funds, banks, financial planning groups and traditional platform providers.

Quantifeed already has seven staff based in Australia – six developers, some of whom speak Chinese, and a business development manager, to complement its larger offices in Hong Kong and Singapore.

 

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