Ease of use, accessibility, instant access: Robo-Advice is taking off within the Financial Services market...
The rise of Robo-Advisers within the Financial Services sector is opening up the market to more clients than ever before. With advances in technology giving rise to an inflation of new apps, portals and software platforms designed to provide a more affordable way of looking after your money, Robo-Advisers have been emerging onto the scene for some time now as a way for everybody to gain access to services that were previously reserved for the wealthiest customers in the market.
Though it’s currently a smaller sector of the Financial Services industry, it’s also growing rapidly: estimates predict that between $2.2- $3.7tn in assets will be managed with the support of robo-advisory services by 2020, rising to $16tn by 2025. Public appetite for robo-advice is huge, and it’s only just started to change the Financial Services sector.
Robo-Advice is a cheaper alternative to more traditional financial advice, using automation and AI to build and manage portfolios of funds for their customers. Accessed using an online portal, these services grant people access a similar service to a traditional Financial Advisory firm without the need to consult with a Wealth Manager or Financial Adviser directly. It’s also diverse: this service will also let you manage your pensions, file your taxes and track your expenses, all from the comfort of your home.
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The rise of Robo-Advice has the potential to cause huge disruption in a market that has already seen FinTech start-ups encroach on the business of many traditional advisory firms. Robo-Advice, though, falls into a very specific niche, targeting customers who often can’t meet the traditional minimum amount needed to set up an account, or those who want more control over their portfolios, and thereby opening up the market to a whole new customer base which has often been underserved in the past. Traditional Wealth Managers charge 1-3% of their client portfolios to maintain their services every year, which can prove expensive for people with less to invest: now, people with between £10,000- £100,000 can invest via a similar service for only 0.25% or so a year. With 61% of adults banking online, making the switch to a Robo-adviser is not a large leap to make.
Indeed, the entry-level market, especially millennials, have embraced the opportunities that Robo-Advisers offer with open arms, as these new services allow them to start managing their income and plan for the future at the touch of a button; however, these services have also proved popular with older customers, as people take control of their financial planning and use smart technology to start preparing for retirement. And it’s proving popular: in the UK, Robo-adviser Wealthify has become so widely-used that insurance giant Aviva bought a majority stake in it last year.
Though investors with larger portfolios, and with more to invest, are more likely to stay with wealth managers when it comes to managing their assets- indeed, 77% of wealth management clients trust their Financial advisers, and want to continue working with them to grow and manage their wealth- it cannot be denied that Robo-Advice is also transforming the market at a higher level. In addition to serving as an incentive to lower fees, the rise of AI also gives Financial Services companies a chance to streamline their market offering by incorporating the use of Robo-Advisers into their mainstream customer offering, allowing low-level wealth managers to oversee multiple lower-revenue accounts with less effort.
Indeed, many of these companies are investing money into creating their own Robo-Advisory services, with firms like Wells Fargo, Morgan Stanley and JP Morgan Chase having launched their own digital investment services over the past year or so. Big market players like Goldman Sachs and ICBC are also in the process of developing their own. In the competitive Financial Services market, these services offer established firms the chance to reach a whole new client market.
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What’s on the horizon for robo-advice? Financial Advisers will always be in demand, but the industry is changing. Technology is bringing investors ever-closer to their Advisers, and people want more power when it comes to managing their own finances. Robo-Advice platforms offer this, allowing investors to interact with their Advisers and take a much more active role when it comes to investment.
The popularity of Robo-Advice is only going to grow: for Financial Services firms, it’s time to consider how this new way of doing business might impact the market in the future. As a result, I believe Robo-Advice will begin to be incorporated into most Advisory firms in coming years, due to technology’s continual growth, Robo – Advice will take a proportion of the market focusing on younger, digital savvy Investors or those who want more privacy and control on their investments.
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