13 - Robo-Advisor in CCB Principal Asset Management Company - Case Study

HK1175
RUJING MENG
FANG ZHU
A CHAIRMAN’S DECISION: LAUNCHING A

ROBO-ADVISOR IN CCB PRINCIPAL ASSET
MANAGEMENT COMPANY
Mr. Zhichen Sun, the new chairman of CCB Principal Asset Management, Ltd. (CCB Principal),
was considering the future. CCB Principal was one of China’s largest fund management
companies with over USD94.29bn1 in assets under management (AUM) as of the end of 2018.
It was a subsidiary of China Construction Bank Corporation, one of China’s top four banks.
The asset management industry in China had always been quick to leverage technological
change to gain an advantage. Since the debut of robo-advisors in 2015 in the Chinese market,
this change was coming even faster. As a rising star in the area of financial technology
(FinTech), robo-advisors applied automated algorithms to realize investment goals for clients
in a cost- and time-efficient method. Between 2016 and 2018, not just FinTech startups in China
rushed to launch robo-advisor platforms, but renowned internet companies like Alibaba and
traditional financial institutions like big banks, asset management companies, or security firms
in China also began to introduce robo-advisory services into their existing business. Artificial
intelligence had brought both opportunities and challenges to traditional wealth managers. Mr.
Sun and his management team needed to analyze the characteristics of the Chinese market and
the pros and cons for launching robo-advisory services and decide on CCB Principal’s strategy
going forward. Should they start offering robo-advisors as a core service?
Robo-Advisors vs. Traditional Financial Advisors

Traditional Financial Advisors
Traditional wealth management was provided to high-net-worth clients either by large
corporate entities like banks or brokerage firms, or by independent financial advisors. The
services they provided were not only financial planning or portfolio management, but also
1 “Company information of CCB Principal”, Sina Finance, 2018, http://finance.sina.com.cn/fund/company/80065990.shtml,

accessed 13 March 2019.
Fang Zhu prepared this case under the supervision of Professor Rujing Meng for class discussion. This case is not intended to
show effective or ineffective handling of decision or business processes. The authors might have disguised certain information to
protect confidentiality. Cases are written in the past tense, this is not meant to imply that all practices, organizations, people,
places or fact mentioned in the case no longer occur, exist or apply.
© 2019 by The Asia Case Research Centre, The University of Hong Kong. No part of this publication may be digitized, photocopied
or otherwise reproduced, posted or transmitted in any form or by any means without the permission of The University of Hong
Kong.
Ref. 19/631C
Last edited: 8 May 2019
This document is authorized for use only in Dr. Arun Kumar Gupta's S2-22-(MBA ZG557/ PDFT ZG557) Fintech in Wealth Management at Birla Institute of Technology & Science (BITS) -
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19/631C A Chairman’s Decision: Launching A Robo-Advisor in CCB Principal Asset Management Company
insurance, legal or estate planning, tax services, and retirement planning. 2 , 3 Generally, the
service was not available to the mass market and mass affluent clients.
The basis of traditional wealth management was the interaction between clients and human
financial advisors. In order to enhance their existing financial situation, high-net-worth
individuals or other affluent clients sought professional advice from financial advisors who had
expertise in specific financial products or services.4,5
[See Exhibit 1 for a list of leading traditional wealth managers worldwide.]
Robo-advisors
Robo-advisors provided personalized financial and investment advice online with minimal
human intervention.6 They combined the theory of asset allocation and portfolio optimization
with newly developed technologies such as big data and cloud computing, and produced digital
financial solutions based on algorithms.7
For robo-advisors, the process of allocating assets was fully automated, and the portfolios were
managed by algorithms and software. The investors got access to these portfolios through
online platforms. There were few human financial advisors involved.
Typically, robo-advisors collected information from clients about their financial status,
investment goals, and risk tolerance through an online questionnaire, and then used the
collected data to determine the strategy for the clients and automatically manage the clients’
assets.8,9 The fees involved for robo-advisors were the management fee and the expenses of the
investments. The management fee was charged as a fixed monthly payment fee or as a
percentage of assets.10
Most robo-advisors used exchange traded funds (ETFs) or mutual funds to build the portfolios
rather than using any individual stocks, as the client portfolio was expected to be well
diversified and passively managed. Robo-advisors typically followed a portfolio asset
allocation model based on classical modern portfolio theory (MPT).
Merits of Robo-Advisors
Compared with traditional wealth management, the following were major advantages of robo-
advisory:
 Robo-advisors minimized human intervention and realized the automation of asset
allocation and investment advice. Therefore, the management fees for robo-advisors
were considerably lower than the fees for traditional wealth managers.
2
“Wealth Management,” Wikipedia, https://en.wikipedia.org/wiki/Wealth_management, accessed 7 October 2018.
3
“Wealth Management,” Investopedia, https://www.investopedia.com/terms/w/wealthmanagement.asp, accessed 3 October
2018.
4
Russ Alan Prince, “What is Wealth Management?,” Forbes, 16 May 2014,
https://www.forbes.com/sites/russalanprince/2014/05/16/what-is-wealth-management/#fa3b68b133e6, accessed 4 October
2018.
5
“Wealth Management,” Investopedia.
6
“Robo-advisor,” Wikipedia, https://en.wikipedia.org/wiki/Robo-advisor, accessed 4 October 2018.
7
Rujing Meng, “Advice on the development of robo-advisory,” 30 September 2018,
http://www.ftchinese.com/story/001079612?archive, accessed 3 October, 2018.
8 “Robo-advisor,” Investopedia, https://www.investopedia.com/terms/r/roboadvisor-roboadviser.asp, accessed 30 October 2018.
9 Kokfai Phoon and Francis Koh, “Robo-Advisors and Wealth Management,” The Journal of Alternative Investments, Winter
2018, https://jai.iijournals.com/content/20/3/79, accessed 24 April 2019.

10
Dana Anspach, “What is a Robo Advisor and How Do They Work?,” The Balance, 14 May 2018,
https://www.thebalance.com/what-is-a-robo-advisor-and-how-do-they-work-4097134, accessed 31 October 2018.
[See Exhibit 2 for a comparison of the fees of traditional financial advisors and robo-
advisors.]
 Robo-advisors significantly reduced the threshold of the minimum amounts of assets
for wealth management.11 Unlike traditional wealth management that was exclusively
designated for high-net-worth or wealthy individuals, robo-advisors required only
hundreds or thousands of USD as minimum account balance for clients who wanted to
open an account, and required a bare minimum of ongoing worth of net assets.12 This
made the robo-advisory service available to investors at all levels.
 Robo-advisors avoided the investing mistakes possibly made by human wealth
managers. While humans made emotional decisions during market movements or
based on gut feelings, software was more rigid and rational, and thus exercised strict
discipline in following a long-term financial plan. The holding assets were allocated
and automatically adjusted according to clients’ risk preference, with no or very
limited human interventions.
For the low fees, low entry thresholds, and ease of use, Robo-advisors were a great solution for
beginning investors, young and soon-to-be-rich professionals, or the middle class that were
interested in a cost-effective and simple wealth management service.13,14 Taking advantage of
the vast development in technology and data analysis, robo-advisors made wealth management
an inclusive finance service that was accessible to everyone who wanted to build wealth.
Limitations of Robo-Advisors
While many middle-class investors followed the trends and tried robo-advisors, wealthier
investors were still more likely to prefer face-to-face meetings with human financial advisors
rather than automated online platforms and algorithms.15
Compared with traditional wealth management, the following were the major disadvantages of
robo-advisors:
 Although robo-advisors could design personalized portfolios according to the results
of the clients’ online questionnaires, the lack of human intervention in the process of
wealth management was still critical in some cases. Unlike humans, robo-advisors were
not able to spot or contest bad decisions or uncertainty from the clients, nor sway clients’
decisions.16
 The market of robo-advisors was expected to grow worldwide, but there were aspects
of wealth management that only a human could achieve at the current stage of
technological development. Robo-advisors were not capable of doing complex
financial planning that involved estate planning, tax planning, retirement planning,
insurance needs, budget planning, and saving goals. 17 Software and algorithms
allocated assets according to MPT. However, without an actual human who understood
the complexity of financial planning and could correctly input the data entry, it was not
possible for computers to calculate accurately, give tax or legal advice, do retirement
or estate planning, and provide other more complicated advice. As a result, for clients
11
Meng, “Advice on the development of robo-advisory.”
12 Ibid.
13 Anspach, “What is a Robo Advisor and How Do They Work?”
14 Eric Jansen, “When a robo-advisor is, or isn’t, the right choice,” CNBC, 5 June 2018,
https://www.cnbc.com/2018/06/04/when-a-robo-advisor-is-or-isnt-the-right-choice.html, accessed 8 October 2018.

15
“Betterment Robo-Advisor to Partner With Goldman Sachs and Black Rock,, Investopedia,
https://www.investopedia.com/articles/investing/041015/future-roboadvisors-future-advisor.asp.accessed 8 October 2018.
16 Mark Cussen, “What Robo Advisors can and can’t do,” Investopedia, 2018,
https://www.investopedia.com/articles/tech/020117/what-roboadvisors-can-and-cant-do-investors.asp, accessed 31 October

2018.
17 Ibid.
who needed advice on determining their investment objectives, or needed broader

financial planning, a human wealth manager was still necessary given current
technological development. 18
 The rapid growth of the automation of investment might outpace the development of
risk management technics. When an unexpected market event suddenly occurred, robo-
advisors might be unable to respond in time and operate accordingly. In those
unexpected market circumstances, human intervention would became crucial.19
[See Exhibit 3 for the market segmentation implications of technology in asset management.]
How Robo-Advisors Managed Assets

The key model behind robo-advisors was MPT. As a mathematic framework of portfolio
management,20 MPT provided the methodology for assembling a portfolio of assets such that
the expected return of the portfolio was maximized at a predetermined risk level.21, 22
Mathematical Model
MPT was also called mean-variance analysis. It was a framework for asset allocation such that
the expected return of a portfolio of assets was maximized at a given risk level or the portfolio
risk was minimized for a given level of the portfolio’s expected return. MPT was proposed by
Harry Markowitz in 1952, for which he later won a Nobel Prize in economics.23
[See Appendix 1 for details of the mathematical definitions and model of MPT.]
Based on software and algorithms, robo-advisors applied the MPT model, found the efficient
frontier and capital allocation line (CAL) for the given asset pool, and constructed portfolios
along the CAL at a given level of risk according to clients’ needs.24
The Management Procedure

Robo-advisors first needed to identify and construct their asset pool for investment. Typically,
robo-advisors used ETFs and mutual funds as asset management tools and managed the clients’
portfolios with a diversified and passive approach.
After the asset pool was built, robo-advisors asked clients to answer online surveys or
questionnaires to clarify their investment goals, risk tolerance, or other personal preferences.
Based on the investment goals, time period, risk tolerance, and so on, robo-advisors selected
ETFs or mutual funds from different asset classes and used the optimization algorithms based
on MPT to find the optimal portfolio automatically.
[See Appendix 2 for a flowchart of how robo-advisors conduct asset management services for
their clients.]
18 Barbara Friedberg, “Pros & Cons of Using a Robo-Advisor,” Investopedia, 27 May 2018,
https://www.investopedia.com/articles/personal-finance/010616/pros-cons-using-roboadvisor.asp, accessed 02 November
2018.
19 Ibid..
20 Betram K. C. Chan, “Classical Mathematical Models in Financial Engineering and Modern Portfolio Theory,” 15 September
2017, https://onlinelibrary.wiley.com/doi/abs/10.1002/9781119388050.ch3, accessed 24 April 2019.

21 “Modern Portfolio Theory,” Wikipedia, https://en.wikipedia.org/wiki/Modern_portfolio_theory, accessed 8 October 2018.
22 Chan, “Classical Mathematical Models in Financial Engineering and Modern Portfolio Theory.”
23 “Modern Portfolio Theory,” Wikipedia.
24 Chan, “Classical Mathematical Models in Financial Engineering and Modern Portfolio Theory.”
The performance of the optimal portfolio was constantly and automatically monitored by the
software, and the portfolio was rebalanced according to the algorithm to ensure the performance
was within the threshold set by the clients. If the performance deviated from the threshold, the
optimization algorithms were reapplied to find a new optimal portfolio that was consistent with
the clients’ needs.
The Origin and Development of Robo-advisors

Wealth managers had used the technology of automated asset allocation software since the early
2000s. Before robo-advisors appeared on the market, clients had to employ a human financial
advisor to benefit from the technology.25 The 2008 global financial crisis stimulated innovations
for wealth management firms to provide services with easier access and lower fees to their
clients, and therefore triggered the emergence of robo-advisors.26
In 2008, robo-advisors first appeared on the US market. Betterment in New York and
Wealthfront in Silicon Valley were launched during the 2008 financial crisis, targeting middle-
class clients.27 The initial purpose of launching robo-advisors was to rebalance the assets of the
investors within target-date funds. Robo-advisors provided investors a way to manage their
passive, buy-and-hold investments through a simple online interface.28, 29
Robo-advisors gradually gained popularity as they were easy to access, cost efficient, and
transparent. Following Betterment and Wealthfront, more FinTech startups in the US, such as
Personal Capital, FutureAdvisor, SigFig, also opened robo-advisory services, though they were
still trying to capture market share and their business were not yet profitable.30
In 2015, traditional wealth management companies and investment banks began to participate
in robo-advisory services by launching their own robo-advisors or by mergers and acquisitions.
In March 2015, Charles Schwab launched Schwab Intelligent Portfolios. In May 2015,
Vanguard launched Personal Advisor Services. In August 2015, BlackRock announced the
acquisition of FutureAdvisor, an online financial advisory firm. In 2016, Goldman Sachs
acquired Honest Dollar, an online management platform for retirement plans. 31 Traditional
financial institutions quickly established leading positions in the robo-advisory market because
of their accumulated experience in financial investment and broad customer base. By August
2018, Vanguard and Charles Schwab were the top-two largest robo-advisors with assets under
management (AUM) of USD112bn and USD33.3bn, respectively.32
[See Exhibit 4 for a list and details of major robo-advisors in the US.]
[See Exhibit 5 for number of robo-advisory firms launched in the US from 2008 to 2015.]
[See Exhibit 6 for AUM of selected major robo-advisors in the US.]
25 “Robo-Advisor”, Investopedia, https://www.investopedia.com/terms/r/roboadvisor-roboadviser.asp, accessed 8 October 2018.

26 Kokfai Phoon and Francis Koh, “Robo-Advisors and Wealth Management,” The Journal of Alternative Investments 20, no. 3
(Winter 2018): 79–94, http://jai.iijournals.com/content/20/3/79, accessed 8 October 2018.
27
28
“Robo-advisor,” Wikipedia, https://en.wikipedia.org/wiki/Robo-advisor, accessed 4 October 2018.
29
“Betterment Review 2019,” 12 February 2019, https://www.nerdwallet.com/reviews/investing/betterment, accessed 24 April
2019.
30
31
Ibid.
32
“Largest Wealth Management Companies in USA”, Statista, 2018, https://www.statista.com/statistics/329646/largest-wealth-
management-companies-usa-by-value-of-client-assets/, accessed 8 March 2019.
During the FinTech boom, robo-advisors also gained ground outside the US. In 2012, Nutmeg
in the UK and Moneyfarm in Italy were founded, followed by the fast growth of the robo-
advisor markets in Germany and other European countries.33 By the end of 2017, there were
around 100 robo-advisors in Europe, located in the UK, Germany, Italy, France, Spain,
Netherlands, Switzerland, and so on. 34
Two markets dominated the rising trend of robo-advisors in Europe: the UK and Germany.
While the British market of robo-advisors had the most AUM, the German market had the
fastest pace of growth.35 The relatively harmonized legislation of Germany made it a good
continental market in Europe for FinTech startups. 36 Moreover, the low interest rates also
encouraged the development of German robo-advisors. German investors were traditionally
strong savers. As the interest rates became negligible or even negative, their demands for
inexpensive and convenient investment services increased.37
[See Exhibit 7 for a list and details of major robo-advisors in Europe.]
In Asia Pacific, robo-advisors were initially slow taking off, but grew rapidly after 2016. Youyu
Robo Advisor by Yufeng Capital (YF Capital), Aqumon by Magnum Research, and Chloe by
8 Securities were launched in Hong Kong, 38 and Smartly, StashAway, AutoWealth were
founded in Singapore39; they targeted clients from the younger generation with their digital,
low-cost wealth management solutions. Other robo-advisors were founded in Taiwan, Japan,
South Korea, India, and Australia.
[See Exhibit 8 for a list and details of major robo-advisors in APAC.]
In mainland China, the robo-advisor industry was still at initial stages and was expected to
grow.40 Between 2016 and 2018, traditional financial institutions in China began to establish
robo-advisory platforms. China Merchants Bank launched the robo-advisor service
Machinegene Investment (Mojie); CreditEase launched Toumi RA; Ping An Securities
launched the AI Smart Stock Investment; and China Southern Asset Management launched
Super Zhitoubao.41 Xuanji by Pintec, a Beijing-based robo-advisor, gave asset allocation advice
using a full portfolio of onshore mainland China mutual funds. In 2018, Xuanji expanded its
fully automated portfolio service in Asia.42
The domestic retail investor base presented an enormous opportunity for the robo-advisor
industry in mainland China. There, the robo-advisor market gained much interest, yet also
raised regulatory concerns. In April 2018, the China Securities Regulatory Commission (CSRC)
called out two Chinese robo-advisors, Licaimofang and Latte Bank, as they failed to obtain
33
Gerrard Cowan, “Robo advisers start to take hold in Europe,” Wall Street Journal, 4 February 2018,
https://www.wsj.com/articles/robo-advisers-start-to-take-hold-in-europe-1517799781, accessed 22 October 2018.
34 Ibid.
35
Ibid.
36 “Berlin startup Cashboard raises €3 million as German fintech momentum continues,” Business Insider, 23 November 2016,
http://uk.businessinsider.com/cashboard-funding-digital-space-ventures-german-fintech-momentum-2016-11, accessed 21
October 2018.
37
Cowan, “Robo advisers start to take hold in Europe.”
38 “Robo Advisors in Hong Kong,” FinTech News Hong Kong, 27 November 2017,
http://fintechnews.hk/3284/roboadvisor/robo-advisors-hong-kong/, accessed on 10 October 2018.

39 Joanne Poh, “Robo advisors in Singapore,” Moneysmart (blog), 30 May 2018, https://blog.moneysmart.sg/invest/robo-
advisors-singapore/, accessed 24 October 2018.

40 “Asset Management in China,” KPMG, 2018, https://home.kpmg.com/xx/en/home/insights/2018/06/20-years-of-asset-
management-in-china.html, accessed 14 November 2018.

41
Imogene Wong, “China’s robo-advisor Xuanji expands overseas,” Fund Selector Asia, 20 July 2017,
https://fundselectorasia.com/china-robo-advisor-xuanji-expands-overseas/, accessed 24 October 2018.
42 Ibid.
proper mutual fund sales licenses. The CSRC also required investment disclosure from robo-
advisory companies to ensure that their clients fully understood the strategies and risks.
[See Exhibit 9 for a list and details of major robo-advisors in China.]
According to Statista,43 the total AUM for robo-advisors globally amounted to USD397,972mn
by 2018, and the estimated growth rate of AUM for robo-advisors from 2018 to 2022 was
38.2%, which resulted in a total AUM of USD1,452,637mn by 2022.
By June 2018, the US, China, the UK, and Germany were the four leading regions that had the
largest amounts of AUM worldwide, and the total amounts of AUM were expected to grow in
the following four years.
[See Exhibit 10 for global comparison of AUM of robo-advisors.]
Although the AUM and number of users were predicted to grow in the future, the rate of growth
in AUM was expected to decrease constantly.
[See Exhibit 11 for the charts of AUM, AUM growth rate, and number of users of robo-
advisors worldwide.]
The Asset Management Industry in China

The asset management industry began in China in 1998. During the next two decades, the
industry achieved remarkable development. The AUM of asset management firms in China
grew from USD1.27bn in 1998 to USD2trn in 2018.44 According to a KPMG forecast, the total
AUM would reach USD5.6trn by 2025, which would make China the world’s second-largest
market for asset management.45
In 1998, there were only six asset management companies in China, all closed-end funds. In
2001, the first open-ended mutual fund was established in China. In 2004, the first ETF was
introduced in China.46 With the development of the industry, Qualified Foreign Institutional
Investors (QFII) entered the Chinese market in 2002, and Qualified Domestic Institutional
Investors (QDII) were allowed to invest in the overseas market in 2007. Chinese fund
management companies established offshore subsidiaries overseas. Banks, insurers, and
security firms joined the asset management industry, stimulating innovations in product design
and operational capabilities.
[See Exhibit 12 for a glance at the development of Chinese asset management industry from
1998 to 2018.]
As the industry thrived in the past 20 years, the number of asset management firms reached 132
in 2018. By 2018, the range of products in Chinese market included money market funds,
closed-end funds, open-end mutual funds, ETFs, fund of funds (FOF), and so on.
43 “Robo-advisors worldwide,” Statista, 2018, https://www.statista.com/outlook/337/100/robo-advisors/worldwide, accessed

October 31 2018.
44 KPMG, “Asset Management in China.”
45 Ibid.
46
KPMG, “Celebrating 20 years of asset management in China”,
“https://assets.kpmg.com/content/dam/kpmg/xx/pdf/2018/06/celebrating-20-years-of-am-in-china.pdf, accessed 8 October
2018.
[See Exhibit 13 for a summary of the Chinese asset management industry during the 20-year
development.]
By the first quarter of 2018, the 10 largest asset management companies in China controlled
51.3% of the country’s market share.47 Major industrial players included E Fund Management
Company (E Fund), China Asset Management Company (China AMC), and China Southern
Asset Management Company (China Southern). These major players were the primary
beneficiaries of the expansion of the industry. In the meantime, banks, tech firms, and other
institutions brought new forms of competition and products into the Chinese asset management
industry. Market players and investors in China expected a more diversified, innovative, and
sophisticated market.
[See Exhibit 14 for a list of the top-20 asset management firms in China and their AUM by Q2
2018.]
The Investor Base and Mentality in China

Unlike in the US market where institutions dominated stock trading or investment activities, in
China, retail investors owned the majority of the market shares. According to China
International Capital Corporation (CICC) statistics, retail investors made up over 80% of
China’s financial market.48
The retail investors in China were often referred to as “gamblers” or “punters.” A number of
Chinese investors speculated on short-term market movement and focused on immediate
returns. They lacked the sophistication of strategic decision making. Therefore, their acceptance
of the passively managed investment strategies over a long term was limited.
In addition, aggressive government intervention and the uncertainty of regulatory policies in

China also had a crucial impact on the behavior of individual investors. The appetite investors
had for risk altered greatly due to changing government policies.
ETFs and Mutual Funds in China

Chinese ETFs mainly invested in and tracked equity, fixed-income, gold, and money market
fund indexes in China. According to data from Morningstar, the AUM of all ETFs domiciled
in China was USD37.39bn at the end of June 2018.49 By June 2018, the ETF market in China
was second largest in Asia by assets, behind the market in Japan.50
The majority of Chinese ETFs invested in domestic equities. During the first quarter of 2018,
the three equity funds, the China Southern CSI 500 Index ETF, the E Fund Chinext ETF, and
the Huaan Chinext 50 ETF were the top-three asset gainers. Additionally, there were seven
cross-border ETFs, the QDII ETFs, listed in China’s stock exchanges.51
By the beginning of 2018, the total AUM of China’s mutual fund industry was around
USD1.6trn. Money market funds (MMFs) accounted for nearly 60% of market share.52 Since
47
KPMG, “Asset Management in China.
48 “In China, It’s Global Money Managers vs. Mom and Pop,” Bloomberg News,
https://www.bloomberg.com/news/articles/2017-09-27/in-china-it-s-global-money-managers-vs-mom-and-pop, accessed 14
November 2018.
49
Piotr Zembrowski, “Are China’s ETFs taking off?,” Fund Selector Asia, 12 July 2018, https://fundselectorasia.com/are-chinas-
etfs-taking-off/, accessed 14 November 2018.
50
Ibid.
51
Ibid.
52
“China money market funds’ AUM hits new record in November,” Asia Asset, 29 December 2017,
https://www.asiaasset.com/news/CMMF_AUM.aspx, accessed 8 March 2019.
the establishment of China’s first online MMF, Yuebao by Tianhong Asset Management, a
subsidiary of Alibaba, in 2013, the MMF market in China had a significant boost. By October
2017, the AUM of Yuebao had increased to over USD216bn.53
In 2017, CSRC approved asset management firms to launch a fund of funds (FOF),54 and market
watchers expected a prosperous future for the products in the Chinese market. As a multi-
manager investment tool, an FOF was able to offer investors a variety of investment strategies
with more diversified risk.
CCB Principal Asset Management Co., Ltd.

CCB Principal Asset Management Co., Ltd. (CCB Principal) was founded in September 2005
based in Beijing, China. As indicated in Exhibit 12, it was among the first batch of banking
fund management companies in China established after the CSRC promulgated the
management guidance, “Establishment of Fund Management Companies by Commercial
Banks.”55
[Exhibit 12 lists all the major events during the past 20 years of the asset management industry
in China. See the column for 2005 in Exhibit 12 and examples of other fund management
companies established by Chinese commercial banks following the management guidance of
“Establishment of Fund Management Companies by Commercial Banks.”]
CCB Principal was established as a joint venture of China Construction Bank Corporation, one
of the four biggest banks in China, and Principal Financial Group, the US insurer and pension
manager.56 China Construction Bank had a 65% stake; and Principal Financial Group, 25%.
The domestic power producer China Huadian Group held the remaining 10%.57
As a subsidiary of China Construction Bank Corporation, one of the top-four commercial banks
in China, CCB Principal had a natural advantage in customer sources and financial support
from the bank. The scale of CCB Principal grew steadily after its establishment in 2005. By the
end of 2018, the total AUM of CCB Principal was over USD94.29bn,58 which was among the
top 15 in the Chinese asset management industry. With more than 60 products with different
risk profiles, CCB Principal provided asset management services to nearly 7.5 million clients
in China.59
Products of CCB Principal

As a large domestic fund management company in China, CCB Principal formed a
comprehensive product line to satisfy the needs of different investors. The major products of
CCB Principal included funds of stocks, bonds, indexes, money market instruments, and FOFs
investing in Chinese securities. It was also among the QDII. The most renowned product of
53 Ibid.
54 “China’s super rich are wary toward AI ‘robo advisors,’ preferring human instead,” SCMP, 4 April 2018,
https://www.scmp.com/business/banking-finance/article/2140129/chinas-super-rich-are-wary-towards-ai-robo-advisers,
55 “Guidance from CRSC”, CRSC, 26 February 2014,
http://www.csrc.gov.cn/pub/newsite/flb/flfg/bmgf/jj/gszl/201012/t20101231_189590.html, accessed 8 March 2019.

56
“Principal in tie-up with CCB,” 9 August 2005, https://www.scmp.com/article/511497/principal-tie-ccb?amp=1, accessed 8
March 2019.
57
Ibid.
58
“Company information of CCB Principal”, Sina Finance, 2018, http://finance.sina.com.cn/fund/company/80065990.shtml,
59 “Company information”, CCB Principal, http://www.ccbfund.cn/qywh.jhtml, accessed 8 March 2019.
CCB Principal was money market funds, due to the support of its major shareholder, China
Construction Bank.
According to the interim report of CCB Principal in 2018, the income from the management
fees for money market funds was as high as USD151.79mn, which accounted for nearly 70%
of the total income of the company.60 However, CCB Principal’s performance in other types of
funds like equities or bonds was less superior, especially compared with its industrial peers. By
the end of the third quarter of 2018, the AUM of equity assets of CCB Principal was USD4.6bn,
which accounted for only a small portion of its total AUM.61
Equity Funds
Based on industry research and fundamental analysis, CCB Principal offered equity funds
invested in various industries, including information technology, internet, energy, environment,
medical and health care, infrastructure, and service industries. Its asset pool contained large,
mid-, or small-cap, and value and growth stocks.62
Bond Funds
CCB Principal was the industry leader in fixed-income investment strategies and accumulated
a broad customer base. It offered open-ended and closed-end funds and its asset pool included
government bonds, certificates of deposit in central banks and commercial banks, corporate
bonds, convertible bonds, short-term financing bonds, bond repurchases, and asset-backed
securities63.
ETFs
CCB Principal offered ETFs tracking domestic Chinese indexes as well as overseas indexes,
covering various regions and asset classes. The indexes its ETFs tracked included the following:
Domestic Indexes: CSI 300 Index (China Securities Index 300), CCTV 50 Index, SZSE
Fundamental 60 Index (Shenzhen Stock Exchange Fundamental 60), SZSE 100 Enhanced
Index, CSI 100 Index, SSE 50 Index (Shanghai Stock Exchange 50), MSCI China A Inclusion
RMB Index, CSI SWS Non-ferrous Metal Index, CSI Intelligent Manufacturing Index and
Second-board Market indexes.64
Oversea Indexes: S&P Global BMI, MSCI Emerging Market Index, MSCI ACWI Energy Net
Total Return Index, MSCI ACWI Material Net Total Return Index.65
Money Market Funds

CCB Principal offered money market funds invested in cash, bank deposits, bond repurchases,
China central bank bills, interbank deposit receipts within one year; bonds, asset-backed
securities, or other corporate debt financing instruments with a remaining period of less than
397 days; money market instruments approved by Chinese laws and regulations like CSRC and
the People’s Bank of China.66
60 Ibid.
61 Ibid.
62 Ibid.
63 Ibid.
64 Ibid.
65 Ibid.
66 Ibid.
10
Fund of Funds
A fund of funds (FOF) was an investment strategy in which a fund invested in other types of
funds instead of investing directly in securities of fixed-incomes, equities, currencies products,
and so on.67
For the FOF, exposures to different asset classes and various fund categories were wrapped into
one fund. Through FOF strategies, investors achieved broader diversification, thus less risk
compared with investing in the underlying assets directly. The major shortcoming of FOFs was
the high operating fees compared with other funds with single managers. Investors typically
had to pay twice the expense as multiple funds and managers were involved in the process.68
In September 2017, CCB Principal became one of the six Chinese asset management companies
that were allowed by CSRC to launch FOFs. 69 The Fuzeantai Mixed FOF issued by CCB
Principal was made up of both equity funds and bond funds with a performance benchmark of
20% in CSI 800 Index and 80% in ChinaBond Composite Index.70 In addition, CCB Principal
was in the process of launching pension FOFs to cater to investors with different risk appetites.71
CCB Principal’s Future Strategies

Mr. Zhichen Sun had recently been promoted to chairman of CCB Principal. Taking the
characteristics of robo-advisors, Chinese financial markets, and Chinese investors into
consideration, Mr. Sun was pondering new breakthroughs to facilitate further development of
the company. Launching robo-advisors was among his potential strategies. Before making a
decision, Mr. Sun and his management team needed to carefully weigh the advantages,
bottlenecks, and premises for launching robo-advisory services.
Were robo-advisors suitable for China? What would be the future of robo-advisors in China
and in the global financial market? Mr. Sun and his team needed to answer these questions
before deciding whether to offer robo-advisory as a core service of CCB Principal.
67 Funds of Funds, Investopedia, https://www.investopedia.com/terms/f/fundsoffunds.asp, accessed 8 March 2019.

68 Ibid.
69 “China’s super rich are wary toward AI ‘robo advisors,’ preferring human instead,” SCMP.
70 “Company information”, CCB Principal, http://www.ccbfund.cn/qywh.jhtml, accessed 8 March 2019.
71 Ibid.
11
EXHIBIT 1: LEADING TRADITIONAL WEALTH MANAGERS WORLDWIDE, SEPTEMBER

2018, BY AUM
Source: https://www.statista.com/statistics/329646/largest-wealth-management-companies-usa-by-value-
of-client-assets/.
12
EXHIBIT 2: FEES FOR TRADITIONAL FINANCIAL ADVISORS AND ROBO-ADVISORS
The most common way for a wealth manager to charge its clients was by charging a percentage
of the assets that were under its management. Typically, the management fees had sliding scales
that reduced the percentages charged for wealthier clients.
The average fee for a traditional financial advisor was around 1.02% of AUM annually for an
account of USD1mn, about USD10,200 per year.72 The asset-based fees decreased as the AUM
increased. The management fee for a USD50,000 account was around 1.18%, but down to 0.5%
when the AUM reached USD10mn.73
There were other financial advisors who charged their clients fixed fees. These typically applied
to financial planning or consulting services. 74 Advisors who completed special projects for
clients charged hourly fees.75
Average fees for traditional financial advisors:

Fee Type Average Cost
Percentage of AUM 1% to 2% annually
Fixed Fees USD1,000 to 3,000
Hourly Fees USD100 to 300 per hour
Robo-advisors charged a much lower fee compared with traditional wealth managers. The
typical fee for robo-advisors was about 0.25% to 0.5% of AUM annually.76
72
“How to Cut Financial Advisor Expenses”], Investopedia, https://www.investopedia.com/articles/personal-
finance/071415/how-cut-financial-advisor-expenses.asp, accessed 08 October 2018.
73 “How much does a financial advisor cost?,” Smart Asset, 2018, https://smartasset.com/financial-advisor/financial-advisor-cost,

74 Ibid.
75 Ibid.
76 “How to Cut Financial Advisor Expenses”], Investopedia
13
EXHIBIT 3: MARKET SEGMENTATION IMPLICATIONS FOR TECHNOLOGY
How clients were differentiated according to their level of wealth and complexity of
investments.
Sources:
The chart is from: https://www2.deloitte.com/content/dam/Deloitte/lu/Documents/financial-
services/lu-emerging-models-digital-wealth-advisory-04102017.pdf
14
EXHIBIT 4: MAJOR ROBO-ADVISORS IN THE US (IN ALPHABETICAL ORDER OF

COMPANIES)
Company Robo- Fees (annually) Account Major Investment

Advisors Minimum Instruments
Acorns Acorns USD1 per month for account USD5 ETFs of equities, government
balances of USD5,000 or less bonds and corporate bonds,
and 0.25% for balances real estate
above USD5,000
Betterment Betterment 0.25% - 0.40%77 0 13 types of ETFs
Blackrock FutureAdvisor 0.5% for asset management, USD10,000 ETFs of stock and bonds; cash
0 for retirement plans accounts
Charles Schwab 0.28% for assets excluding USD25,00078 ETFs of stocks, fixed-income
Schwab Intelligent cash products, real estates,
Advisory commodity; cash accounts
E*Trade Core 0.30% USD5,000 ETFs of large-cap blend
Portfolios equities, developed and
emerging markets equities,
fixed-income, and cash
Fidelity Fidelity Go 0.35% 0 A diversified mix of mutual
funds
Goldman Honest Dollar USD1 per month for account 0 ETFs of Vanguard stocks and
Sachs balances of USD5,000 or less bonds
and 0.25% for balances
above USD5,000
Personal Personal 0.49%-0.89%79 USD25,000 ETFs of stocks and bonds,
Capital Capital fixed-income products, cash
accounts
Rebalance360 Rebalance 0.5% + USD250 setup fee USD100,000 ETFs of stocks and bonds
IRA
Vanguard Vanguard 0.30% USD50,000 Vanguard index ETFs and low-
Personal cost index mutual funds
Advisor
Services
Wealthfront Wealthfront 0.25% for account balances USD500 11 types of ETFs including US
more than USD10,000 stocks, Emerging market
stocks, US government bonds,
real estates, commodities; and
a self-managed fund
77 Betterment has two service options: Betterment Digital, its legacy offering, has no account minimum and charges 0.25% of
assets under management annually. Customers in this offering can consult financial advisors via in-app messaging. Betterment
Premium provides unlimited phone access to financial advisors in exchange for a 0.40% fee and $100,000 account minimum.
78 To enroll in Schwab Intelligent Advisory, you need a minimum of $25,000, though these assets may be held across multiple
Schwab Intelligent Advisory accounts. The minimum for each account is $5,000.
79 0.89% for account balances under USD1mn; for clients that invest USD1mn or more: First USD3mn: 0.79% of account
balance. Next USD2mn: 0.69% of account balance. Next USD5mn: 0.59% of account balance. Over USD10mn: 0.49% of
account balance.
15
WealthSimple WealthSimple 0.50% for account balances 0 ETFs of stocks and bonds, cash
less than USD100,000 and accounts
0.40% for account balances
of USD100,000 or more
Sources: compiled by author

https://research.wealthfront.com/whitepapers/investment-methodology/#2-
finding_asset_classes
https://personal.vanguard.com/pdf/vpabroc.pdf
https://www.personalcapital.com/assets/whitepapers/Personal_Capital_Investment_Strategy.pdf
https://www.schwab.com/public/file/CMS-
BDL100047/Schwab_Intelligent_Advisory_Disclosures_BDL100047-01A_3302018.pdf
https://www.wealthsimple.com/en-gb/details
https://www.nerdwallet.com/blog/investing/betterment-review/
https://us.etrade.com/what-we-offer/our-accounts/core-portfolios
https://www.acorns.com/
https://www.rebalance360.com/how-it-works/
https://www.fidelity.com/managed-accounts/fidelity-go/overview
https://www.nerdwallet.com/reviews/investing/betterment
Data as of September 2018.
16
EXHIBIT 5: NUMBER OF ROBO-ADVISORY COMPANIES LAUNCHED IN THE US, 2008–

2015
Number of robo-advisory companies launches in the

United States from 2008 to 2015
50
44
45
40 37
Number of companies
35
30
25
22
20
15
11
10
6 5
4 4
5
0
2008 2009 2010 2011 2012 2013 2014 2015
Year
Source:https://www.statista.com/statistics/755626/number-of-digital-advisory-companies-
launched-usa/.
17
EXHIBIT 6: ASSETS UNDER MANAGEMENT OF SELECTED ROBO-ADVISORS IN THE

US, JUNE 2018
AUM of Selected Robo-Advisors in U.S. as of June 2018

120
101
100
AUM in billion USD
80
60
40
27
20 13.5
10.2
3.9 1.5 1.1 0.55 0.53 0.19
0
Source: https://www.statista.com/statistics/573291/aum-of-selected-robo-advisors-globally/.
18
EXHIBIT 7: MAJOR ROBO-ADVISORS IN EUROPE (IN ALPHABETICAL ORDER OF

COMPANIES)
Company Robo- Countries Fees (annually) Account Major Investment Instruments

Advisors or Minimum
Regions
Easyfolio Easyfolio Germany 0.96% EUR100 ETFs of bonds and equities, Easyfolio
provided clients with 3 risk profiles to
choose from: Easyfolio 30 – 30%
equities and 70% bonds; Easyfolio 50 –
50% equities and 50% bonds; Easyfolio
70 – 70% equities and 30% bonds
Liqid Owlhub Germany 0.25%-0.9% EUR100 ETFs of equities, bonds, gold and
money market
Moneyfarm Moneyfarm Italy and 0.4%-0.7%80 GBP500 ETFs of bonds, equities, commodities
UK and real estates, and cash
Nutmeg Nutmeg UK 0.25%-0.75%81 GBP500 ETFs of US, UK, Swiss equities and
bonds; cash accounts
Scalable Scalable Germany 0.75% EUR10,000 ETFs of equities of global market, US
Capital Capital and European Corporate bonds, US,
UK , European and emerging market
government bonds, global
commodities, global real estates
Vaamo Vaamo Germany 0.49%-0.79%82 EUR100 12 ETFs of equity indexes, bonds and
real estates
Wealth Wealth UK 0.25%-0.93% GBP1,000 ETFs of fixed-income products, UK and
Horizon Horizon developed market equities, real estate
Sources:
https://www.nutmeg.com/our-fee
https://www.nutmeg.com/how-we-invest
https://www.nutmeg.com/nutmegonomics/nutmeg-investor-update-january-
2018/
https://www.moneyfarm.com/uk/
https://www.liqid.de
http://www.wealthhorizon.com/our-fees/
https://www.vaamo.de/konditionen
https://www.vaamo.de/anlagekonzept
Data were as of September 2018.
80 Account balances of GBP20,000 or less, 0.7%, between GBP20,000 and GBP100,000, 0.6%, between GBP100,000 and
GBP500,000, 0.5%, over GBP500,000 0.4%.
81
Account balances of GBP20,000 or less, 0.7%, between GBP20,000 and GBP100,000, 0.6%, between GBP100,000 and
GBP500,000, 0.5%, over GBP500,000 0.4%.
82 Account balances less than EUR100,000, 0.79%, otherwise 0.49%.
19
EXHIBIT 8: MAJOR ROBO-ADVISORS IN APAC (IN ALPHABETICAL ORDER OF

COMPANIES)
Company Robo Countries Fees (annually) Account Major Investment

Advisors or Minimum Instruments
Regions
8 Securities Chloe Hong 0 for account balances under HKD1,000 ETFs including over 30
Kong HKD8,888, 0,88% for accounts countries, 40 sectors
over HKD8,888 and 2,000 stocks and
bonds
AutoWealth AutoWealth Singapore 0.50% SGD3,000 ETFs of bonds and
equities of US, Europe,
APAC and emerging
markets
YF Capital Youyu Hong - USD800 343 ETFs of equities,
robo- Kong bonds, commodities
advisor and real estates
Magnum Aqumon Hong 0.80% - ETFs of bonds and
Research Kong equities in US and Hong
Kong
Smartly Smartly Singapore 0.5%-1%83 SGD50 more than 30 ETFs of
equities, government
bonds, corporate
bonds, commodities,
real estates and cash
StashAway StashAway Singapore 0.2% - 0.8%84 0 19 ETFs of different
regions and sectors
Stockspot Stockspot Australia 0.396% - 0.66% for account 0 ETFs of Vanguard
balances more than USD10k, Australian Shares ,
and USD5.5 per month with Global shares, emerging
the first 6 months free for market, government
balances USD10,000 or less85 bonds and commodities
Sources:
https://www.stockspot.com.au
https://www.8securities.com/en/robo/
https://www.aqumon.com/en/
http://www.yff.com/en/wm/
83
Accounts under SGD10,000, 1%, accounts over SGD10,000 but no more than SGD100,000, 0.7%, accounts over
SGD100,000, 0.5%.
84 First SGD25k, 0.8%;
any additional amount above SGD25,000 to 50,000, 0.7%;

any additional amount above SGD500,000 to 1mm, 0.3%;
any additional amount above SGD1mn,
0.2%.
85 USD10,001-499,999: 0.66%;
USD500,000-2,499,999: 0.528%;
more than USD2.5mn: 0.396%
more than USD2.5mn: 0.396%
20
http://fintechnews.hk/tag/youyu-robo-advisor/
http://fintechnews.hk/3284/roboadvisor/robo-advisors-hong-
kong/
https://www.autowealth.sg/
https://www.smartly.sg/
https://www.stashaway.sg/
21
EXHIBIT 9: MAJOR ROBO-ADVISORS IN CHINA (IN ALPHABETICAL ORDER OF COMPANIES)
Company Robo Advisors Fees (annually) Account Minimum Major Investment Instruments
China Merchants Bank Machinegene (Mojie) 1% annually RMB 20,000 Actively managed funds in China
China Southern Asset Zhitoubao The platform was free Different portfolios according to the risk
Management (SuperIntelligent RA) preferences of clients. Products included ETFs of
bonds, equities, money market, etc.
CreditEase Toumi RA USD 500 ETFs of US, European and emerging markets,
including asset classes of fixed-income, equities,
real estates and commodities
Harvest Fund iGoldenBeta The online platform was free; Depended on the Products of Harvest Fund Management
Management clients needed to pay brokerage clients' portfolios
fees
JinRongJie Lingxi Robo-Advisor The online platform was free; RMB 500 to 5,000 ETFs of various asset classes from different
clients needed to pay fees for depending on the regions
brokerage, redemption and clients' assets
management from the security
companies

Pintec Xuanji RMB 50,000 Onshore mutual funds in China and QDII funds for
RMB investors and ETFs from various asset
classes for USD investors
Sources:
https://www.jiemian.com/article/2023426.html
https://1.jrj.com.cn/zntg/
http://ixuanji.com/
http://help.igoldenbeta.com/hc/kb/article/1039907/
22
EXHIBIT 10: GLOBAL COMPARISON OF AUM OF ROBO-ADVISORS
Assets under Management in million USD

By September 2018
United States 292,809
China 81,437
United Kingdom 8,891
Germany 4,527
Source:
Robo-advisors worldwide, Statista, 2018, https://www.statista.com/outlook/337/100/robo-
advisors/worldwide.
EXHIBIT 11: AUM, AUM GROWTH RATE, AND NUMBER OF USERS OF ROBO-
ADVISORS WORLDWIDE
Chart 1: AUM of Robo-Advisors Worldwide
AUM of Robo-Advisors
1,600,000
1,452,637
1,400,000
1,200,000 1,147,996
in million USD
1,000,000
859,209
800,000
604,748
600,000
397,972
400,000
244,128
139,580
200,000
0
2016 2017 2018 2019 2020 2021 2022
Year
Chart 2: AUM Growth Rate of Robo-Advisors Worldwide
23
AUM Growth Rate of Robo-Advisors Worldwide

80.0% 74.9%
70.0% 63.0%
60.0%
52.0%
50.0%
42.1%
in percent
40.0% 33.6%
30.0% 26.5%
20.0%
10.0%
0.0%
2017 2018 2019 2020 2021 2022
Year
Chart 3: Number of Users of Robo-Advisors Worldwide
Number of Users of Robo-Advisors Worldwide

140,000.0
121,949.8
120,000.0
96,159.3
100,000.0
in thousand
80,000.0 69,622.0
60,000.0
45,203.6
40,000.0
25,778.3
20,000.0 12,945.8
6,105.6
0.0
2016 2017 2018 2019 2020 2021 2022
year
Source:
Robo-advisors worldwide, Statista, 2018, https://www.statista.com/outlook/337/100/robo-
advisors/worldwide.
24
EXHIBIT 12: THE DEVELOPMENT OF CHINESE ASSET MANAGEMENT INDUSTRY,

1998–2018
A timeline of the major events in the Chinese asset management industry, 1998–2018
YEAR EVENT
1998 The first six fund management companies were established: Guotai,
Southern, ChinaAMC, Huaan, Bosera, and Penghua.
2001 The first open-ended mutual fund Huaan Innovation was issued, a hybrid
mutual fund investing in multi-asset classes including fixed-income and
equities.
2002 In November 2002, Qualified Foreign Institutional Investors (QFII) were
allowed to invest in China's stock market.
In December 2002, the National Council for Social Security Fund awarded
mandates to external managers for the first time.
2003 First batch of Sino-foreign joint venture fund managers. Hwabao WP, HFT
Fund, CPIC Fund, Invesco Great Wall were the first four established joint
venture fund management companies in China. Fullgoal attracted capital
injection from Bank of Montreal.
2004 The Securities Investment Fund Law was enacted. First ETF introduced in
China (ChinaAMC China 50 ETF).
2005 First batch of banking fund management companies entered the Chinese
market, including ICBC Credit Suisse, Bank of Communications Schroder,
UBS SDIC, CCB Principal, etc.
2007 Qualified Domestic Institutional Investors (QDII) were allowed to invest in

overseas market.
2008 First Chinese managers' offshore subsidiary established: CSOP Asset

Management was founded in Hong Kong by China Southern Asset
Management.
2012 Asset Management Association of China (AMAC) was founded.
2013 China's first online money market fund, Yuebao, was launched.
2017 The China Securities Regulatory Commission (CSRC) announced guidance

on pension target funds, paving the way for the issuance of the first
pension target fund.
2018 The People's Bank of China (PBOC), the China Banking and Insurance
Regulatory Commission (CBIRC), and CSRC jointly issued the "Guidance
Opinions Concerning Standardization of Asset Management Operations by
Financial Institutions,” aiming at a more stable, transparent, and
regulated asset management market.86
86 PBOC, 27 April 2018, http://www.pbc.gov.cn/goutongjiaoliu/113456/113469/3529600/index.html, accessed 8 March 2019.
25
By August 2018, 14 fund companies including ChinaAMC, Southern, and

Fullgoal had received approval to issue pension target funds, and the first
batch of pension target funds in China was expected to be available on
the market soon.
Sources:
https://assets.kpmg.com/content/dam/kpmg/xx/pdf/2018/06/celebrating-20-years-of-am-in-
china.pdf
http://www.chinabankingnews.com/2018/04/30/five-key-points-understanding-chinas-new-
asset-management-rules/
https://zhidao.baidu.com/question/181743999652255804.html?qbl=relate_question_3
http://fund.jrj.com.cn/archives,040001.shtml
https://baike.baidu.com/item/%E7%A4%BE%E4%BF%9D%E5%9F%BA%E9%87%91
https://baike.baidu.com/item/QFII%E5%88%B6%E5%BA%A6
http://fund.chinaamc.com/english/INVESTMENTPRODUCTS/QDIIFund/GlobalSelectiveFu
nd/indexfund/ChinaSMEETF/China50ETF/index.shtml
http://fund.jrj.com.cn/2018/08/10164124938255.shtml
http://fund.sohu.com/20121031/n356232321.shtml
http://www.csopasset.com/tc/home
EXHIBIT 13: SUMMARY OF CHINESE ASSET MANAGEMENT INDUSTRY

Key numbers of the Chinese asset management industry during the 20-year development period.
YEAR 1988 2008 2018Q1

Number of fund management companies 6 60 132
Number of products 11 515 6,943
Total AUM of the industry in billions (USD) 1.27 297.3 2,011.0
Source:
https://assets.kpmg.com/content/dam/kpmg/xx/pdf/2018/06/celebrating-20-years-of-am-in-
china.pdf.
26
EXHIBIT 14: TOP-20 ASSET MANAGEMENT FIRMS IN CHINA AND THEIR AUM, Q2 2018
ASSET FOREIGN JV PARTNER 2018 Q2 AUM IN BN 2018 Q2 AUM IN BN

RANK
MANAGER (HOLDINGS) RMB USD
1 E Fund – 246.9 35.9
Power Corporation of
2 ChinaAMC 206.2 30.0
Canada
3 Bosera – 203.6 29.6
4 Harvest DWS 196.1 28.5
5 BOC Blackrock 194.3 28.3
6 China Southern AM – 166.8 24.3
7 China Universal – 155.6 22.6
China Merchants
8 – 151.5 22.1
Fund
9 GF Fund – 145 21.1
10 Fullgoal BMO Bank of Montreal 141.8 20.6
11 ICBC Credit Suisse Credit Suisse 119.3 17.4
12 Aegon-Industrial Aegon 110.1 16.0
13 Huaan – 110 16.0
14 CCB Principal Principal Global Investors 105.4 15.3
15 ABC-CA Amundi 103.2 15.0
16 Penghua Fund Eurizon Capital SGR S.p.A. 92.6 13.5
17 Oriental Securities – 92.4 13.4
18 Guotai Generali 81.9 11.9
19 Lombarda China Unione di Banche Italiane 69.5 10.1
20 BOCOM Schroders Schroders 62.5 9.1
Source:
http://fund.jrj.com.cn/2018/07/02142524756506.shtml.
27
APPENDIX 1: MATHEMATICAL MODEL OF MODERN PORTFOLIO THEORY
 Definitions87
Considering the expected return and the level of risk of a portfolio consisted of 𝑛 risky assets
over a period.
For the component asset 𝑖, 𝑖 = 1, … , 𝑛, 𝑤𝑖 was the weight of the asset 𝑖, i.e., the proportion of
asset 𝑖 in the portfolio. The return of asset 𝑖 was denoted as 𝑅𝑖 , and the sample standard
deviation of the returns of asset 𝑖 was denoted as 𝜎𝑖 . For the asset pair (𝑖, 𝑗), 𝑖 = 1, … , 𝑛, 𝑗 =
1, … , 𝑛, the correlation between the returns of asset 𝑖 and asset 𝑗 was denoted as 𝜌𝑖𝑗 . For 𝑖 =
𝑗, 𝜌𝑖𝑗 = 1.
Denote the portfolio return as 𝑅𝑝 . The expected return of the portfolio E(𝑅𝑝 ) was the
proportional weighted sum of the expected return of each component asset 𝑖 in the portfolio,
i.e.:
𝑛
E(𝑅𝑝 ) = ∑ 𝑤𝑖 E(𝑅𝑖 ).
𝑖=1
The level of risk of a portfolio was measured by portfolio return’s variance 𝜎𝑝2 and volatility
𝜎𝑝 . The portfolio return variance was a function of the correlations of the component assets, for
all asset pairs.
𝑛 𝑛
𝜎𝑝2 = ∑ ∑ 𝑤𝑖 𝑤𝑗 𝜌𝑖𝑗 𝜎𝑖 𝜎𝑗 .
𝑖=1 𝑗=1
𝜎𝑝 = √𝜎𝑝2 .
 Assumptions
Investors were risk averse:
Given two portfolios that offered the same expected return, investors would choose the less
risky one. Therefore, an investor was only willing to take on more risk if the corresponding
portfolio had a higher expected return. In contrast, an investor who wanted higher expected
returns had to tolerate higher risk.
Investors were rational:

An investor would not invest in a portfolio if there existed an alternative portfolio with more
favorable risk-expected return profile, i.e., for the same risk level, there was another portfolio
that had a higher expected return; or for the same expected return, there was another portfolio
that had a lower level of risk.
The trade-off between risk level and expected return existed for all investors. However, every
investor had his individual risk preference profile. Different investors would evaluate the trade-
off differently based on their risk aversion level.
 Efficient Frontier and the Capital Allocation Line

Efficient frontier for risky assets
Based on the “risk averse” assumption of investors, asset managers were always trying to look
for the portfolio that provided the highest expected return at given level of risk. The efficient
frontier was a set of efficient portfolios that offered the highest expected return for a fixed level
of risk and offered the lowest risk for a fixed level of expected return88.
In the risk-return space, the horizontal axis was the standard deviation, i.e. risk level of the
portfolios. The vertical axis was the expected return. For all the feasible portfolios consisted of
87
Modern Portfolio Theory, https://en.wikipedia.org/wiki/Modern_portfolio_theory.
88
“Efficient Frontier,” Investopedia, https://www.investopedia.com/terms/e/efficientfrontier.asp,
https://www.investopedia.com/terms/e/efficientfrontier.asp, accessed 12 November 2018.
28
risky assets, the efficient frontier was the upper boundary of the set. Each point on the line
represented89 an efficient portfolio.
Figure: Efficient Frontier for Risky Assets
90
In the return-risk space as shown above, portfolios that lay below the efficient frontier were
sub-optimal as they did not give high enough return for a given risk level.
Capital Allocation Line

When the risk-free asset was available, the straight line starting from the vertical axis at the
risk-free rate and tangent to the risky efficient frontier was called the capital allocation line
(CAL). The tangent point of the CAL and the risky efficient frontier was called the tangency
portfolio.
89 Ibid.
90 Source: InvestintAnswers.com.
29
Figure: CAL and the Tangency Portfolio
91
The tangency portfolio was the most efficient risky portfolio with the risk-free asset available.
With the risk-free asset and the tangency portfolio which was composed by risky assets,
investors could choose to move their holdings along the CAL. By shorting the risk-free asset,
i.e. borrowing money at the risk-free rate and investing the proceeds in additional holding of
the tangency portfolio, investors could increase the leverage of their position. By selling some
holding of the tangency portfolio and holding more risk-free assets, investors could decrease
the leverage of their position.92
91
Source: Wikipedia.
92
Glyn Holton, “Capital Market Line”, Glyn Holton website, 5 June 2013,
https://www.glynholton.com/notes/capital_market_line/, accessed 14 November 2018.
30
APPENDIX 2: FLOW CHART OF HOW ROBO-ADVISORS CONDUCT SERVICES

Figure: Flowchart of Robo-Advisors
Source: https://www.cutter.com/article/how-robo-advisors-manage-investment-portfolios-
495656.
31

13 - Robo-Advisor in CCB Principal Asset Management Company - Case Study

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HK1175

A CHAIRMAN’S DECISION: LAUNCHING A

Robo-Advisors vs. Traditional Financial Advisors

1 “Company information of CCB Principal”, Sina Finance, 2018, http://finance.sina.com.cn/fund/company/80065990.shtml,

Last edited: 8 May 2019

[See Exhibit 1 for a list of leading traditional wealth managers worldwide.]

2018, https://jai.iijournals.com/content/20/3/79, accessed 24 April 2019.

https://www.cnbc.com/2018/06/04/when-a-robo-advisor-is-or-isnt-the-right-choice.html, accessed 8 October 2018.

https://www.investopedia.com/articles/tech/020117/what-roboadvisors-can-and-cant-do-investors.asp, accessed 31 October

who needed advice on determining their investment objectives, or needed broader

How Robo-Advisors Managed Assets

The Management Procedure

2017, https://onlinelibrary.wiley.com/doi/abs/10.1002/9781119388050.ch3, accessed 24 April 2019.

The Origin and Development of Robo-advisors

[See Exhibit 6 for AUM of selected major robo-advisors in the US.]

25 “Robo-Advisor”, Investopedia, https://www.investopedia.com/terms/r/roboadvisor-roboadviser.asp, accessed 8 October 2018.

[See Exhibit 7 for a list and details of major robo-advisors in Europe.]

[See Exhibit 8 for a list and details of major robo-advisors in APAC.]

http://fintechnews.hk/3284/roboadvisor/robo-advisors-hong-kong/, accessed on 10 October 2018.

advisors-singapore/, accessed 24 October 2018.

management-in-china.html, accessed 14 November 2018.

[See Exhibit 9 for a list and details of major robo-advisors in China.]

[See Exhibit 10 for global comparison of AUM of robo-advisors.]

The Asset Management Industry in China

43 “Robo-advisors worldwide,” Statista, 2018, https://www.statista.com/outlook/337/100/robo-advisors/worldwide, accessed

The Investor Base and Mentality in China

In addition, aggressive government intervention and the uncertainty of regulatory policies in

ETFs and Mutual Funds in China

CCB Principal Asset Management Co., Ltd.

Products of CCB Principal

http://www.csrc.gov.cn/pub/newsite/flb/flfg/bmgf/jj/gszl/201012/t20101231_189590.html, accessed 8 March 2019.

Money Market Funds

CCB Principal’s Future Strategies

67 Funds of Funds, Investopedia, https://www.investopedia.com/terms/f/fundsoffunds.asp, accessed 8 March 2019.

EXHIBIT 1: LEADING TRADITIONAL WEALTH MANAGERS WORLDWIDE, SEPTEMBER

EXHIBIT 2: FEES FOR TRADITIONAL FINANCIAL ADVISORS AND ROBO-ADVISORS

Average fees for traditional financial advisors:

accessed 8 March 2019.

EXHIBIT 3: MARKET SEGMENTATION IMPLICATIONS FOR TECHNOLOGY

EXHIBIT 4: MAJOR ROBO-ADVISORS IN THE US (IN ALPHABETICAL ORDER OF

Company Robo- Fees (annually) Account Major Investment

Sources: compiled by author

EXHIBIT 5: NUMBER OF ROBO-ADVISORY COMPANIES LAUNCHED IN THE US, 2008–

Number of robo-advisory companies launches in the

EXHIBIT 6: ASSETS UNDER MANAGEMENT OF SELECTED ROBO-ADVISORS IN THE

AUM of Selected Robo-Advisors in U.S. as of June 2018

EXHIBIT 7: MAJOR ROBO-ADVISORS IN EUROPE (IN ALPHABETICAL ORDER OF

Company Robo- Countries Fees (annually) Account Major Investment Instruments

EXHIBIT 8: MAJOR ROBO-ADVISORS IN APAC (IN ALPHABETICAL ORDER OF

Company Robo Countries Fees (annually) Account Major Investment

any additional amount above SGD25,000 to 50,000, 0.7%;

EXHIBIT 9: MAJOR ROBO-ADVISORS IN CHINA (IN ALPHABETICAL ORDER OF COMPANIES)

Pilani from Feb 2023 to Aug 2023.

EXHIBIT 10: GLOBAL COMPARISON OF AUM OF ROBO-ADVISORS

Assets under Management in million USD

Chart 2: AUM Growth Rate of Robo-Advisors Worldwide

AUM Growth Rate of Robo-Advisors Worldwide

Chart 3: Number of Users of Robo-Advisors Worldwide

Number of Users of Robo-Advisors Worldwide

EXHIBIT 12: THE DEVELOPMENT OF CHINESE ASSET MANAGEMENT INDUSTRY,

2007 Qualified Domestic Institutional Investors (QDII) were allowed to invest in

2008 First Chinese managers' offshore subsidiary established: CSOP Asset

2012 Asset Management Association of China (AMAC) was founded.