Much has been made about digital disruption affecting the financial advice industry, though you could be forgiven for wondering what the hype is all about.
After all, the total assets managed by the top robo advisors represent less than 0.1% of the $33 trillion retail market in the U.S., according to Corporate Insight.
But it's not where automated advice stands today that has industry observers paying attention. It's where robos are expected to be in five years from now -- how fast they will accumulate AUM, who will come to dominate the market, and the impact that will have on consumer behavior as well as the cost of doing business.
A number of studies have recently come out examining the digital disruption afoot in the wealth management industry, and we've gone through all of them to pull out key findings, figures and quotes that will help you see past the hype about automated investing, and a clearer picture on where the industry is heading.
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Human support is still the most important relationship for investors, but they are increasingly using digital tools to help them in their decisions, according to a survey done by Wells Fargo and Gallup. "Although most investors like using both advisors and digital tools, they clearly tilt in favor of human advice," the polling group says. The May survey spoke with just over 1,000 adults having investable assets of $10,000 or more.
In briefing material for its own advisors on the emergence of digital advisors, Fidelity notes that the top reason younger, digitally savvy investors will favor robos is cost, ease of doing business, low asset requirements and being able to access a digital toolkit.
All generations want access to human advice, including millennials: That's the upshot of an investor survey done by Charles Schwab and Koski Research in February. But among its findings is that 54% of respondents preferred to rely on technology to handle finances, while 46% favored interactions with other people or advisors.
The survey spoke with 1,808 affluent investors, the firms say.
Robos are proliferating, but not all platforms are equal in their offerings, notes European research firm MyPrivateBanking, which presented its data at SourceMedia's InVest 2015 conference in June. (SourceMedia is publisher of Financial Planning, On Wall Street and Bank Investment Consultant.)
How does the robo advisor market stack up right now? A.T. Kearney took a deep dive into the nascent industry with its June study, "Hype vs. Reality: The Coming Waves of "Robo" Adoption." Incumbent firms have quickly grown in scale, largely by shifting existing assets into their robo platforms.
Among the leading digital-first firms, Bill Harris's Personal Capital counts the most AUM, due to the fact that it caters specifically to a wealthier, older clientele as opposed to the core markets for robos.
It was an off-the-cuff remark, but Hardeep Walia's snub of robos during a Q&A session at the InVest 2015 conference spoke volumes about the disdain that some digital-first firms have toward the efforts of traditional firms to offer robo platforms of their own, and even the term itself.
Yes, the total assets managed by the top robo advisors represent less than 0.1% of the $33 trillion retail market in the U.S., according to Corporate Insight. But they are speeding along it their growth, and within five years, globally they are estimated to grow by over 2100%.
But don't count traditional firms out, say the researchers at MyPrivateBanking Research. Steffen Binder, the firm's managing director and co-founder, expects most traditional firms will have digital automated advice offerings in the next two years and give them an advantage. "The established firms will beat the new robo startups in the next five years," Binder told the audience at InVest 2015.
What's a possible scenario if every firm jumps into the robo market? A price war, says A.T. Kearney, one that could force a downward plunge in revenues for the industry. "Traditional players compete with robo-advisors by lowering their fee structures," its report notes. Even if that doesn't happen, the consulting firm still predicts that industry revenues will drop by as much as $12 billion in five years.
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