Despite there being evidence that suggested standalone robo-advice will not attract affluent investors, data and analytics firm GlobalData says that it will offer competitive advantage to traditional wealth managers over competitors.
The firm revealed that robo-advisers alone do not attract assets under management (AUM), and high-net-worth (HNW) investors are not flocking to transfer their assets to standalone challenger platforms. GlobalData’s 2018 survey of wealth managers found that just 10% of private wealth managers feared they would lose market share to robo-advisers over the coming year.
However, the reports indicated that clients are only entrusting a small portion of their portfolio to the digital-only platforms.
On average, ElleVest’s investors are giving robo-advisers $7,400, while Hedgeable ended with $47,000 per account on average, despite marketing its offering as HNW ready.
Commenting on the findings, GlobalData financial services analyst Andrew Haslip said: “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-adviser to be successful, it must be attracting AUM in the billions of dollars.
“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.”
However, the survey found that there was a growing demand for robo-advice, with 40% of private wealth managers noting strong demand for the technology from their clients, primarily in the Asia-Pacific region. More and more investors are looking at it as a tool that more wealth managers should be deploying on their behalf.
“Despite some drawbacks robo-advice is a competitive advantage that all traditional wealth managers must acquire. They are not about to lose their best HNW clients to a start-up robo-adviser, no matter how slick the digital interface. But they might just lose out to a competitor that has adopted the technology and integrated it into its overall private wealth management proposition. Although ultimately the human element will remain prominent in the world of financial advice, the industry will continue its technological advancement,” Haslip concluded.
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