The Role Of The New Advisor In The Digital Financial World

The Role Of The New Advisor In The Digital Financial World

by December 21, 2016

Robo-advisors, wealth management algorithms typically offered at low costs and with little human interaction, are gaining stream. Globally, wealth managers were responsible for US$74 trillion in assets under management (AUM) in 2014. BI Intelligence predicts that robo-advisors will manage around 10% of total global AUM by 2020. This equates to around US$8 trillion in robo-advisors AUM.

robo advisors growth


Robo-advisors are a class of financial adviser that provides financial advice or portfolio management online with minimal human interaction. Much of the focus has been on portfolio management and most of these platform use algorithms such as Modern portfolio theory.

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Today, popular platforms include US-based Wealthfront and Betterment, UK-based Nutmeg, Australian Stockspot, German Vaamo, among others. In Switzerland we have Truewealth, Glarner KB, Swissquote and some new platforms which are going live soon.

A research conducted by BI Intelligence found that consumers across all classes are receptive to robo-advisors, including the wealthy. 49% of this group would consider investing some of their assets using a robo-advisor.

With robo-advisory on the rise, the wealth management industry is undergoing significant disruption.

According to Deloitte, robo-advisors hold some distinct advantages and are disrupting the industry in the following ways:

– The lower fees have broadened the market for advice to include the majority chunk of untapped wealth. More mass-market consumers can now afford advice.

– Robo-advisory is more appealing to the new generation of wealth, which seeks more control, who is digitally savvy, and demands greater availability.

– With large wealth management firms investing heavily in big data and advanced analytics, robo-advisory can become even more personalized and specific over time.

– Many wealth management firms have already begun incorporating robo-advice capabilities within their existing advisory offerings to create hybrid models.

– Technology has lowered barriers to entry for new firms to break into wealth management. This has brought new levels of competition and innovation to the industry.


Hybrid human-robo advisors

After the strong growth of the robo-advisory approach in recent years, promoted by numerous startups worldwide as well as a sizeable number of early adopting wealth managers, a new “sub-species” has emerged: the hybrid human-robo advisor.

According to MyPrivateBanking’s report “Hybrid Robos: how combining human and automated wealth advice delivers superior results and gains market share,” these platforms combine computerized recommendations with on-demand advice from a human being.

They use technology to standardize and cut costs on the information-gathering side of the job.

The report found that pure robo-advisors (completely automated without personal service added on) have seen their growth slowing down as the market matures. Notably, Betterment’s growth rate for AUM has remained at the same place it was a year ago.

This is due to clients “starting to realize that what they’re getting from many providers is little more than a passive portfolio that they can easily build on their own without the robo middleman,” the report says.

MyPrivateBanking estimates that hybrid robo-advisors will grow to a size of US$3,700 billion assets worldwide by 2020. By 2025, the total market size will further increase to US$16,300 billion. This number constitutes just over 10% of the total investable wealth in 2025. By comparison, pure robo-advisors will have a market share of 1.6% of the total global wealth at that stage.

“Hybrid robo solutions are a dynamic and also unstable new phase in the wealth management industry’s transformation,” the report says. “We expect 2016 to be a year of significant developments.”

So far, notable hybrid robo-advisors include Vanguard, Personal Capital, Rebalance IRA and AssetBuilder.


Featured image: Robot and human touching forefingers by Pixelbliss, via