The expansion of Robo-Advisory in Wealth Management
A closer look and analysis
The takeover of the robots in the classic field of Wealth Management is an emerging trend across the industry. Is this the yet missing revolution to meet client expectations in a digitalizing banking environment? We provide a closer look at the German Robo-Advisory market.
Many traditional Wealth Management firms haven’t taken the upcoming trend of Robo-Advisors overly serious, so far.
In light of shrinking margins, significant cost pressures, more complex regulatory limits and demographic changes, including the future inheritance generation, it seems essential for each firm, however, to actively and objectively evaluate the topic. Forecasts predict that by 2025 Robo-Advisors will manage more than 3 times the assets of today’s icon BlackRock. Wealth Managers will need to revisit their books and make Robo-Advisors an integral part of their Operating Models - be it to grow into the profitable segment of affluent clients, to find a more efficient way to engage with the bottom 20% of their clients or to lead the industry into the next stage.
But first things first, how to get one’s arms around the topic? Based on the defined evolution of Robo-Advisors from 1.0 to 4.0 it can be outlined that as of today about 80% of German, EU, UK and US Robo-Advisors have 3.0 capabilities with an increasing trend to automation and service offerings. It has to be mentioned that especially the Robo-Advisor 3.0 capability includes a wide range of technology from lower to higher end depending on the Robo-Advisor’s chosen strategy. Some offerings prefer a fixed investment strategy built on specific investment theory KPI’s, others choose to include market movements and trends in their automated portfolio rebalancing proposals.
Hybrid-Robo-Advice is the most common model where investment managers utilize digital services for portfolio-rebalancing or asset allocation to optimize their quality of advisory services at shorter time. It can be seen as a clear trend towards classic advisory services.
The different business models across the Robo-Advisory landscape remain to be assessed with regards to relevance for Wealth Managers, digging deeper into aspects such as general profitability, cost of customer acquisition, and potential opportunities for the established players.