For China-backed startup, fund sales go online

Singapore is the international beachhead for Lu International, a firm backed by Chinese insurance giant Ping An.

ON A FLOOR in Marina Bay Financial Centre Tower 2 sits an alternative asset management giant on one side and on the other, a bank and a startup.

It is perhaps a fitting tableau on the ongoing disruption in financial services. Banks have long made money distributing funds managed by asset managers. Upstarts are plotting to disintermediate the industry not just in distribution, but in managing funds themselves.

The open concept office of Lu International, an online wealth manager, is just what one might expect. Meetings can be held in eclectically decorated rooms. The CEO works from a standing desk in a corner.

"People are used to buying groceries, clothes, and food online. Financial services are a natural extension," Lu International CEO Kit Wong told The Business Times.

The numbers of the self-directed looking to buy financial products themselves will only grow, he said.

"People are getting more educated, more financially savvy. Look at the number of financial websites teaching people. With tech, it also becomes easier to design products rapidly."

It is easy to talk big. Yet Lu International is no ordinary cash-strapped disruptor. It is the international beachhead of Lufax, an online wealth management giant in China. Lufax itself is owned by insurance giant Ping An, and a spinoff is reportedly in the works.

If Singapore regulators give the green light for Lu International (Chinese app store name lu guo ji) to target Singapore residents, the firm can be a serious competitor for the online wealth management pie here. This is a space that companies such as Fundsupermart (owned by mainboard-listed iFAST Corporation) is in.

Lu International is operating under a capital markets services licence from the Monetary Authority of Singapore (MAS) in dealing in securities, fund management and providing custodial services for securities.

"For now, we are not targeting Singapore residents. But we are very interested to provide our services to them in the near future," Mr Wong said.

Having launched its Chinese app last October, Lu International is now preparing to launch its English app at the end of March, widening its user base beyond the Chinese.

"Our goal is to find customers who prefer to have a simple app experience, and prefer the sort of products that we have, which are less complex, yield-based products," Mr Wong said.

There are already 10 products from institutions such as BlackRock, Schroders and Pimco distributed on Lu International's platform, as well as funds that the company manages.

Mr Wong declines to reveal the number of customers who have signed up or are actively investing, saying it is early days. But he did say he initially envisioned customers will put US$20,000 each on the platform. Now, the average amount invested is a multiple of that.

"Some people put US$5,000 to test the waters. After they see the product performing, they increase their investment substantially, for example US$30,000," he said.

Admittedly, the firm's initial success is due to a large Chinese customer base already familiar with Lufax's China platform and the Ping An brand.

Lufax has been around since 2011, when it was initially set up as a peer-to-peer lender. Today, its China platform, called lu jin suo, is dominant, distributing thousands of investment products.

Volumes are increasing steadily. As Ping An reported in its most recent results, Lufax counted some 32 million registered users at end-Sept 2017 (up 27 per cent year on year), and 7.7 million active investor users (up 17 per cent). Active users are those with money on the platform.

Assets under management (AUM) at end-Sept 2017 were 476 billion yuan, up 22 per cent, which works out to almost S$100 billion. On the peer-to-peer lending platform, loans under management were 269 billion yuan (up 141 per cent).

The Lu International platform itself is straightforward. Even without logging in, the investor's eyes will be drawn to banners highlighting various numbers: a targeted yield of 3.8 per cent a year for a 161-day product with "high-quality" private assets like "developed country infrastructure", a financials fund that returned 32 per cent the past year, and so on.

Press on the banner, and one will see the top reasons why one should buy the product. There is also a historical performance chart, as well as links to PDFs and factsheets. Press "buy", and one will be prompted as tohow much one wants to buy. Submit the request, and one gets a confirmation.

"We're quite focused on the customer journey. We will continue to experiment, looking at small things, like how do people buy, can I reduce the number of steps to buy, make it more efficient, or display information in a different way," Mr Wong said.

For example, in the onboarding process, asking for bank details later instead of earlier resulted in better sign-up rates.

Another way Lu International can differentiate itself is in sourcing for products not usually available to investors, he said.

"The next step is looking into private equity and venture capital. There is quite a lot of interest in alternatives."

Like other fintech players in the wealth management space, Lu International is also exploring the use of algorithms.

On the back end, machines can help with flagging suspicious transactions and help the firm comply with anti-money laundering rules.

On the front end, it is exploring how to give event-triggered investing advice. "If a company has an event, positive or negative, what are implications of that event? You can trigger a recommendation," he said.

Meanwhile, Mr Wong said the firm will ensure customers buy products they are suited for. Other than the standard risk questionnaire, the firm will also examine self-declared knowledge, historical trading patterns, and the behavioural patterns of similar people. Each customer is given a risk rating, and they can buy products one risk level above if they acknowledge the risk they are taking.

Suitability concerns are important because if customers buy something risky and lose money, they will not be happy, he said.

A Malaysian, Mr Wong began his career at consultancy McKinsey, before moving on to ANZ bank, and then Google, where he was in charge of Asia-Pacific strategy and business operations. He then moved to Indonesia to work for Lippo Group's Ovo savings and payments app, before getting approached for the Lu International opportunity.

For him, the biggest challenge now is to grow the business fast. Like e-commerce, online wealth management requires significant scale to pull off, he said.

After all, Lu International only collects a low flat fee whenever a customer buys a fund. It also has revenue-sharing arrangements with fund managers. The product providers charge management fees ranging from fractions of a percentage point to a full percentage point of AUM a year.

"It's all about the volume game. Technology can help you gain more customers and cross distances," Mr Wong said.

"But customers are fussier on an app in general, so you need to understand what they think, what they want, and how to adapt the app quickly to what they want."