Rise of Robo-advisors in Wealth Management
The rise of robo advisors (automated advice) is shaking up the conservative wealth management industry. While automated advisory systems have mainly been used by fintech companies and other global investment managers to serve the mass affluent demographics, these tools are also likely to grow in sophistication and relevance to high-net-worth and ultra-high-net-worth (HNW and UHNW) investors, particularly younger generations.
The concept of “robo advice”, the use of automation and digital techniques to build and manage portfolios of exchange-traded funds (ETFs) and other instruments for investors, has gained significant attention within the wealth management industry in the last couple of years. By combining the human touch of an experienced advisor with the logic, fee transparency, methodology and accessibility offered by a robo advisor platform, established advisory firms can significantly strengthen their practice models. In this hybrid model, wealth managers combine low-cost automated portfolio management with high-touch services such as comprehensive financial planning strategies. Although robo advice till date has only gained a miniscule share of assets under management (AUM), it presents investors with an interesting value proposition—with a price reduction of as much as 70 percent for some services—and its rate of growth is both rapid and accelerating.
Robo advice capabilities also offer particular benefits to insurance companies as a way of expanding their presence in wealth management while allowing agents to maintain their focus on insurance sales. Overall, it is believed that robo-advice capabilities will effect profound and permanent changes in the way advice is delivered.