Magnetis Gestora de Recursos Ltda, Brazil’s first fintech asset manager, expects demand for affordable access to automated investment advice to surge in coming years as interest rates decline and economic uncertainty persists.
Luciano Tavares, chief executive officer of São Paulo-based Magnetis, said financial technology firms are changing money management practices in Brazil by popularizing so-called robo-advisers for small investors.
As the central bank undertakes the most aggressive rate cutting cycle in eight years, demand for cheap financial advice has fueled a surge in trials for robo-advisers, an automated form of passive money management that identifies a client’s risk-taking preference.
Since March 2015, Magnetis has conducted 30,000 trials for clients eager to understand a platform providing access to 15,000 different domestic tradable assets.
Tavares declined to disclose Magnetis’ client base or current assets under management data. The company has a target for assets under management of 1 billion reais ($317 million) by 2019.
Growing scale has helped Magnetis cut management fees to 0.4 percent, well below the 0.8 percent to 1 percent that banks and brokerages typically charge customers.
Whether such products take hold hinges on fintechs’ ability to convince retail investors – who for years have been hurt by volatility in bonds and stocks – of the merits of their algorithms, industry specialists said.
“The challenge for robo-advisory players in Brazil is to show clients it is a feasible and safer long-run alternative for them; that is more cost-efficient than traditional options,” Tavares said in an interview.
Robo-advisers could also help bring much-needed diversification to retail investors in Brazil, who have struggled with political instability and the harshest recession on record over the past three years.
Following the impeachment of President Dilma Rousseff last year, markets have been roiled by concerns over a new center-right government’s ability to push through reforms amid a major corruption scandal shaking the political establishment.
Tavares said that automated strategies could help less sophisticated investors navigate Brazil’s turbulent financial markets.
Almost 60 percent of Brazil’s 200 million people have a smartphone, and about three-quarters of banking transactions take place through digital and electronic channels.
The robo-advice market was developed by U.S. startups such as Betterment LLC, seeking to upend long established money management firms and banks. Brokerages including Charles Schwab Corp have already launched or are launching similar services.
($1 = 3.1519 reais)
(Additional reporting by Bruno federowski in São Paulo; Editing by Daniel Flynn, Bernard Orr)