Robo-Advisory: Wealth Managers Need to Adapt to New Environment

Robo-Advisory: Wealth Managers Need to Adapt to New Environment

by November 18, 2016

Robo-advisors are causing an uproar and the wealth management industry needs to adapt to this new environment, says Morgan Stanley, one of the largest wealth managers on Wall Street.

According to Michael Cyprys, an equity analyst at the firm: “The rising threat from robo-advice leads financial advisor’s role to evolve: greater focus on financial planning, embracing digital tools such as robos as a means to become more efficient; pairing human and machine.”

“Digital capabilities become increasingly more important as Millennials are more digital savvy than previous generations which is transforming the investment and wealth management landscape; innovative new entrants such as Robos could take share,” Cyprys wrote in a note earlier this year.

A survey conducted by Morgan Stanley found that 58% of Millennials and 50% of Generation X are interested in using robo-advisors.

Robo-advisors, or automated digital wealth management solutions, have attracted about US$50 billion in assets, according to Aite Group LLC. These solutions charge fewer fees, are more open to smaller investors, and are more convenient, offering mobile access and sleek, easy to use apps and websites.

Although the figure remains relatively small compared to the US$130 trillion in assets currently under management globally, robo-advisors “have a long runway for growth,” Cyprys said.

Addressing the emerging trend, many firms and banks have created hybrid models such as Charles Schwab and Vanguard, both of which have developed services that allow their advisors to make significant use of algorithms and robo-advisors.

RBC has teamed up with BlackRock’s FutureAdvisor, Wells Fargo is planning to launch its own robo-advisor in 2017, and UBS’s American wealth management division has invested in robo-advisor SigFig earlier this year.

Going further, Royal Bank of Scotland announced in March that it would replace 220 investment staff with robo-advisors. The bank said that in the future, only clients with £250,000 or more to invest will get face-to-face advice.

Despite the growing appetence for robo-advisors, industry observers and experts believe that these solutions will not necessarily displace traditional wealth managers.

“This is not a human vs. robot competition where one will win,” Jon Stein, CEO of Betterment, an American automated investing service, told Bloomberg.

“There will be customers who want an online driven solution and there will be customers who want the in person relationship, but even those people will expect better technology as part of the relationship.”

Echoing Stein’s statements, Citi analysts wrote in a report released earlier this year:

“We see the advent of robo-advice as an example of automation improving the productivity of traditional investment advisers, and not a situation where there is significant risk of job substitution. Higher net worth or more sophisticated investors will, in our view, always demand face-to-face advice.”

Holger Spielberg, head of digital innovation at Credit Suisse, shares this sentiment. In an interview earlier this year, Spielberg argued that automated investment services bring many benefits and opportunities to both customers and the banking sector.

“At the end of the day, we need to look not at what it means for banking, but for the user – the recipient of financial services,” he said. “We need to put them at the forefront.”

Technological disruption is inevitable, Spielberg said. However, he also believes that some aspects of the traditional wealth management services will remain relevant, notably human engagement.

“The human element is a crucial aspect of our strategy,” he said. “What isn’t changing, even with all the changes, is the intent in receiving value.”

Rather than creating a faceless and unresponsive automation, robo-advisors may very well add value and efficiency to private wealth management.

In July, former Credit Suisse bankers Bastian Lossen, Giles Keating and Felix Roescheisen announced plans to launch a new robo-advisor service called Werthstein, according to Finews.

Werthstein has created a new approach in digital wealth management. The solution combines a multimedia platform with portfolio management. The platform will provide wealth management services for free. Customers will only pay a subscription fee for video and multimedia content provided through the platform. These will mainly consist of video clips of bankers and experts sharing investment ideas.

Other robo-advisor services in Switzerland include True Wealth, Glarner KB, Swissquote, and InvestGlass.


Featured image: Robot hand by Ociacia via

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