January 10, 2019

Robo-advisors are taking work from traditional wealth managers

By Lucy Ingham

The traditional wealth management industry is under threat from automation, with robo-advisors set to take market share away from their human counterparts in the coming year.

This according to research by data and analytics company GlobalData, which showed that from 2018 wealth managers have seen a growing threat from automated alternatives.

Robo-advisors are automated, AI-based solutions to wealth management, that provide financial advice and management services based on analytics and resulting market predictions.

While some are operating in the high net worth market traditionally targeted by human wealth managers, there are a growing number of robo-advisor products designed for individuals with lower investment pots.

Robo-advisors automation fears strongest in Asia-Pacific and Europe

The concerns surrounding robo-advisors and automation are strongest in the Asia-Pacific and European markets, where fintech products have gained particularly strong support.

“In previous years, traditional wealth managers across the globe had a widespread level of agreement that robo-advice would seize market share,” explained Sergel Woldemicheal, wealth management analyst at GlobalData.

“However, as of 2018, the level of agreement that Asian-Pacific and European wealth managers will lose market share to robo-advisors is beginning to align.”

Automation fears contrast previous findings

The findings by GlobalData of concerns over a loss of market share to robo-advisors contrast with previous research by the company.

In 2018 it found that robo-advisors could provide traditional wealth managers with a competitive advantage if they were used alongside humans to augment a company’s services.

The key difference is likely to be the development of the market for more conventional earners, who are interested in investing but do not have the finances for a personal human wealth manager.

“When a key selling point of the service is its low costs, you have to have a mass market strategy. In other words, in order for any robo-advisor to be successful, it must be attracting assets under management in the billions of dollars,” said Andrew Haslip, financial services analyst at GlobalData, when the previous research was announced.

“Robo-advice is a volume play, not a margin play, so the boutique specialist angle is not practical. Wealthfront, Betterment and a few other major brands such as Acorns are strong enough and broad enough to attract enough clients. Start-ups with little brand awareness and targeted addressable markets are not.”