Skip to main content Skip to Footer

HIGHLIGHTS


Is robo-advice the future of wealth management?

Read the report highlights on how automation and digital technologies are redefining the wealth management industry.

As automation and digital technologies increase in sophistication, a new kind of wealth management tool is emerging. Robo-advice has captured a relatively small share of assets under management (AUM) to date, but the growth potential is significant. By the end of 2015, digital wealth management assets—including those at traditional firms—were expected to reach between $55 billion and $60 billion.

Robo-advice, today and tomorrow
Current robo-advice capabilities are still relatively basic. Simple surveys are used to understand client needs and generate a client profile, which in turn is used to recommend and implement an asset allocation. Today’s robo-advice is particularly adept at streamlining the account opening process and assessing risk tolerance, and less proficient at customizing solutions and persuading clients to act.

The technology is evolving quickly though. Innovations in fields like cognitive computing, combined with increased competition and consumers’ desire for privacy and control, are expected to drive major advances in robo-advice capabilities over the next decade.

Tomorrow’s robo-advice services will interact with clients in a multi-step process, choosing questions to ask based on responses received. As a result, they will be capable of accounting for multiple investment goals, taking into consideration outside assets and illiquid positions, and helping clients understand their portfolios and interpret their financial results.

What that means for human advisors
Even with the rapid advancement and growing sophistication of robo-advice services, human financial advisors will still have an important role to play in wealth management. An Accenture study found that 81 percent of clients think face-to-face interaction is important. Furthermore, 77 percent trust their financial advisors and want to work with them to grow and manage their wealth.

While robo-advice services are unlikely to replace human advisors anytime soon, they are not going away either. Price-sensitive investors with relatively straightforward needs will no longer be willing to pay premium prices for traditional wealth management if they can access cost-effective robo-advice services elsewhere. Wealth management firms must find effective ways to leverage these capabilities if they wish to remain competitive.

What that means for the wealth management business model
To date, the wealth management industry’s response to robo-advice has varied considerably among firms. Some have launched their own robo-advice services, some have leveraged “white label” services, and others have acquired independent robo-advice players. When it comes to distribution, firms may use robo-advice within the context of a full-service advisor experience, offer it as a complementary product through a call center, or launch it as a standalone product under an entirely different brand.

There is no right or wrong way to approach robo-advice services. What matters most is that each firm finds an offering that makes sense for its target clients, develops an effective distribution strategy to reach that audience, and takes steps to bring its advisor force on board.

READ THE FULL ARTICLE