With robo-advisors receiving so much press as of late, it makes sense to listen to what one authoritative, unbiased voice is saying on the technology and its future. Last week William Trout, senior analyst at Celent, presented a webinar entitled “Robo Advice 3.0: What Is It, and Where Do We Go from Here?” on the current iteration of robo-advisor technology and its expected trajectory relative to both wealth and asset managers. A recording of the webinar may be viewed by Celent clients through the firm’s website, but below are three highlights from it.
Competition is Heating Up for More than Just Millennials
A major driver of robo and its success is automation and how that technology delivers a better, more streamlined digital experience for investors, especially those who don’t have time for lengthy manual processes and numerous person to person consultations. Algorithms, tailored to run relative to an investor’s net worth and investment goals, allow robo-advisors to seamlessly test strategies and allocations. With the arrival of challengers like Betterment and Wealthfront, come responses from incumbents like Merrill Lynch and Charles Schwab, who are already targeting the mass affluent market with their own offerings, understanding that robo-advising has begun to push up market towards high-net-worth—and older—individuals. In a survey of 28 financial institutions, Celent found that 71.4% of respondents said that the rise of robo has prompted their firms to accelerate the upgrading of advisors’ technology and that 50% saw it as a complement to their current business model. Just 10% stated that robo’s strengthening market presence has had no effect on technology investment.
Adaption and Adoption are Imperative to Survival
In a nutshell, robo-advisors have disrupted the industry because they provide a highly personalized, digital wealth management experience at a cost low enough to scale as rapidly as necessary, regardless of a market segment’s net worth. William Trout believes that the best way for wealth managers to adapt to and, consequently, survive this latest onslaught is to find a balance between customization and scale that is just as financially viable. Or in his words, “They need to find a way to deliver personalized, highly customized service to clients who may not have one or five million dollars. The answer is partly technology. The answer also involves looking at how you’re going to serve clients, how you’re going to deliver going forward.”
The Future Looks Smart, Very, Very Smart
“Clients today will still pay for advice. What they won’t necessarily pay for and what robo-advisors are slowly discovering [is] they won’t pay for portfolio management services. That space is becoming commoditized, and robo-advisors need to go further,” said William. But what’s further? By 2020 the industry could see robos delivering dynamic advice powered by machine learning, or artificial intelligence. This is where a B2C “Super Robo” would assist elite advisors with ideation, delivery, and risk and compliance, relying on AI capabilities like pattern recognition, automated learning and preparation, and running suitability checks, respectively. Rather than performing the simple algorithmic “if/then” tasks of today, these “Super Robos” would add substantial value to a wealth advisor’s services, enhancing the efficiency and effectiveness of investment insights. Coverage of this last point is intensifying, as William’s thoughts were echoed within an article in The Wall Street Journal just last week.