KUALA LUMPUR (April 30): When it comes to technology (tech), the goal should not be to use the most difficult tech available to do something. Instead, the ultimate goal is to make it simple and cost-effective. This is what Michele Ferrario, co-founder and chief executive officer of Stashaway, aims to achieve 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 on relooking at the interface and seeing what can be done better,” he said in an interview with The Edge.

This doesn’t always lead to more tech and features being added. There are times when taking out features is the best course forward. Simplicity comes from reducing things sometimes, Ferrario added.

When Stashaway was launched, portfolios offered on the platform had to be domiciled in the respective countries. This means that a user that 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, the fractionalisation of exchange-traded funds (ETFs) allows users to build a diversified portfolio across 10 or more classes, from as little as RM50, he noted.

“We have money coming in on a daily basis [and] we have a rebalancing effort that happens automatically. Because we combine orders from many customers, we reduce costs and are able to offer low [prices] to our clients. We call it the trading system,” explained Ferrario.

Asked on his views about how generative artificial intelligence (Gen AI) will impact investments, Ferarrio believes AI is still a distant prospect.

“I don’t believe that we should use AI to build and manage portfolios. We are long-term investors. We need to help people build asset allocation [and] manage their asset allocation with a long-term view. There is no real advantage in building a black box with AI that actually makes those asset allocation decisions, given the long-term view. It’s different if we were day traders,” he said.

Stashaway uses an algorithmic approach to asset allocation, which is fully systematic. Machine learning and AI techniques are used to solve complex mathematical problems. However, these AI techniques do not fall under the Gen AI category, said Ferrario.

In any case, every decision made for an investment should be able to be explained, he said.

Stashaway’s core portfolio is managed by Economic Regime-based Asset Allocation (ERAA).

ERAA uses macroeconomic data to minimise risk and maximise returns for every portfolio through economic cycles.

Four pillars guide ERAA’s asset allocation decisions, which is regime-based asset allocation, risk control, valuation gaps and managing asset-specific risk. Additionally, four economic regimes are identified, which are good times, inflationary growth, stagflation and recession.

ERAA keeps customer risk profiles constant throughout these regimes by systematically re-allocating assets when the economy or markets substantially changes.

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 actually have a conversation with the platform, rather than [a] click option [one, two, three or four]. This is something we need to discover,” he said.

“We are running some tests and small scale experiments, and seeing what people like and don’t like.”

Ferrario also said he has had bad experiences with bots, but Gen AI could improve the performance of the bots. “I mean, with Chat GPT, that’s [like] a real conversation,” he said.

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 actually transform a lot of our customer support into Gen AI-enabled ones. My perspective is that we shouldn’t. The reason is that 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,” Ferrario said.

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 their clientele, said Ferrario.

“We make sure we’re not helping you gamble like 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,” he said.

“Every month, you put aside (a certain amount) and invest in a portfolio, or in a set of portfolios that have the right risk level for you.”

Of course, financial education needs to be addressed, he said. “Financial education in the region is quite low. It’s a bit of a vicious cycle where historical players are able to sell products with unfair fee structures, or with unclear risk reward profiles because the general understanding of these products (are not there),” explained Ferrario.

The Stashaway foundation aims to address financial literacy with 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 quite a bit of time and effort into,” he said.

Moving forward, Ferrario said people will want to have more control over their investments. This is as 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 is going to be a significant enabler of that happening,” he added.