Your Business

Global invasion of the robo-advisers

October 2017

View it a threat or an opportunity, automated advice technology is on the rise, writes Zoe Fielding.

Worldwide, robo-advisers have more than $US224 billion in assets under management, according to British fintech researcher Burnmark. By 2022, the market will be worth more than $US1 trillion, the researcher predicts.

Others have made more bullish forecasts: from $US2.2 trillion by 2020 (A.T. Kearny) up to $US4.6 trillion by 2022 (BI Intelligence).

There are only a handful of robo-advice businesses in Australia at present, but the market is more developed elsewhere.

In the US, around 200 digital advice services are in operation. One of the largest, Betterment, hit $US10 billion in assets under management in July. It serves about 270,000 customers.

Germany has more than 30 robo-advisory businesses; Britain, China and India have about 20 each; and France, Canada, Switzerland and Japan each have more than a dozen.

Singapore is working on regulations that would make it easier for robo-advisers to set up there and serve clients across the region.

New Zealand is also looking at ways to foster the development of personal robo-advice models

Competitive threat

Few people expect robo-advice to completely replace human financial advisers. But automated advice technology could pose a real competitive threat to businesses that are not prepared to meet the challenge.

Many would be surprised by consumers’ receptiveness to using automated advice services.

Most assume robo-advice appeals only to tech-savvy – but less wealthy – youngsters. Midwinter Financial Services asked Australian financial advisers which demographic they thought would be best suited to robo-advice and 90 per cent cited Generations Y and Z.

But other research reveals a wide range of consumers would be comfortable receiving automated advice.

Almost 70 per cent of high-net-worth individuals surveyed in Capgemini's World Wealth Report 2016 said they would be happy to use an automated advisory service, up from 49 per cent in the 2015 survey.

More broadly, Accenture found 38 per cent of consumers globally would consider buying investment advisory services from an online provider while more than 75 per cent of investment advisory customers would be willing to receive automated support on asset allocation.

Financial advice clients surveyed by Accenture said they actually preferred some aspects of the robo-advice experience over traditional advice, in particular:

  • the privacy offered by a digital solution
  • the ability to learn
  • the ability to chart their own path.

Other benefits for consumers are that automated advice usually costs less than traditional advice and it can be accessed any time, from anywhere with an internet connection.

If you can’t beat them, join them

Financial advice businesses worldwide are responding to competition from robo-advisers by adopting financial-services technology themselves. This includes:

  • developing advice models that integrate both face-to-face advice and digital services
  • automating the back office to cut costs and free advisers’ time for clients.

In the US, wealth management giants The Vanguard Group and Charles Schwab & Co, among others, have introduced robo-advice services in addition to their personal financial consultants.

Even online US investment service Betterment recently introduced a human-advice service, recognising its clients may need personal interaction in some situations.

Traditional advisers in the US are implementing mobile technology to give clients better access to data on their investments.

  • Two-thirds of investors surveyed by CoreData say their traditional financial adviser offers a mobile investing app.
  • Half of investors surveyed use mobile or tablet apps to invest or monitor their portfolios now.
  • Seven in ten expect to be using mobile apps for investing and receiving advice within five years. The numbers are even higher among Millennials (see table below).

Source: CoreData 

Advisers in Britain are also beginning to bring automated advice into their practices.

While only 2 per cent of British advisers have a robo-advice offering now, another 8 per cent are in the process of creating one and 12 per cent plan to do so to take advantage of time and cost savings, research from Panacea Adviser found. Just last year, almost 90 per cent of advisers in the same survey said they felt robo-advice was a threat to traditional financial advice models.

In Australia, 11 per cent of advisers have considered robo-advice in their strategic business plan and another 18 per cent intended to do so, Midwinter research shows. The remaining 71 per cent are disregarding the technology.

No going back

But over time, ignoring advice automation technology may be not an option.

Tech-savvy investors want more control over their investments and more involvement in decision-making.

Fees are under pressure and clients are becoming increasingly demanding.

Clients are coming to expect to be able to engage with their advisers wherever and whenever they want, including via digital and mobile channels. They want greater access to information on investments and progress towards their goals, all in real-time and with the highest levels of data security.

Businesses that successfully harness automated advice technology will be able to fulfil their clients’ demands, streamline operations and potentially improve profitability. Those that do not may struggle to meet these needs.