 | During the last few years, young technology companies have been disrupting the financial sector worldwide, giving birth to one of the most promising industries: fintech. Although the fintech sector includes several applications and business models, all companies operating within it share the same common goal: making the financial industry more efficient and transparent, by disintermediating it through the use of internet and technologies. Disintermediation is indeed a key word within fintech. Just like online investing and peer-to-peer lending have disintermediated fundraising for small and medium companies, the so called “Robo-Advisors” are disintermediating wealth management. |
Robo-advisors are by definition online wealth management services that provide automated, algorithm-based portfolio management advice without the use human financial planners. Like the rest of fintech players, these kind of companies are undergoing a very rapid growth and it has been estimated they will manage about $480 billion by 2020, which reveals a growth rate of approximately 2,500% in 5 years.
Given these impressive data, a legitimate question that one may ask is: can robo-advisors substitute completely human advisors and financial planners? The answers are of course various. While a few are very skeptical about it, as they don’t see how a software could easily get a million of people to trust it in managing their savings, others are instead enthusiastic. However, the most common answer - and probably the one closest to reality sits in the middle. Robo-advisors won’t substitute human financial planners, but will integrate their service and offer. In fact, a recent industry study highlighted that 58% of financial planners polled plan to use robo-advisors in their financial-planning offering to clients.
In some cases this is already happening, with custodians partnering with robo-advisors to expand their offer. It is believed that millennials and more in general retail customers with a fairly simple financial situation are the perfect target customers for robo-advisors companies. The average age of the customer of one of the leading robo-advisors in the US, Betterment, is 36.
When looking at the future of the wealth management industry, it is very likely that robo-advisors will complement the services offered by incumbents. As an industry expert observed: “With retail direct firms adding digital advice solutions, and digital advisors using service representatives to support online advice, the two channels are converging”.
References
Robo-Advisors to Oversee Close to $500 Billion by 2020. Financial Advisor IQ (2015)
Osterland, A. (2015).Is the future for robo-advisors bright ... or a bust?. CNBC
Nepach, B. (2015).Cerulli Sees 2,500% Jump in Robo Assets in Next 5 Years. Thinkadvisor.com
Photo credit to: John Williams
Given these impressive data, a legitimate question that one may ask is: can robo-advisors substitute completely human advisors and financial planners? The answers are of course various. While a few are very skeptical about it, as they don’t see how a software could easily get a million of people to trust it in managing their savings, others are instead enthusiastic. However, the most common answer - and probably the one closest to reality sits in the middle. Robo-advisors won’t substitute human financial planners, but will integrate their service and offer. In fact, a recent industry study highlighted that 58% of financial planners polled plan to use robo-advisors in their financial-planning offering to clients.
In some cases this is already happening, with custodians partnering with robo-advisors to expand their offer. It is believed that millennials and more in general retail customers with a fairly simple financial situation are the perfect target customers for robo-advisors companies. The average age of the customer of one of the leading robo-advisors in the US, Betterment, is 36.
When looking at the future of the wealth management industry, it is very likely that robo-advisors will complement the services offered by incumbents. As an industry expert observed: “With retail direct firms adding digital advice solutions, and digital advisors using service representatives to support online advice, the two channels are converging”.
References
Robo-Advisors to Oversee Close to $500 Billion by 2020. Financial Advisor IQ (2015)
Osterland, A. (2015).Is the future for robo-advisors bright ... or a bust?. CNBC
Nepach, B. (2015).Cerulli Sees 2,500% Jump in Robo Assets in Next 5 Years. Thinkadvisor.com
Photo credit to: John Williams
 | About the author - Irene Tordera Born and raised in Milan, Italy, Irene is an International Business graduate, with a strong interest for innovative ideas that can simplify our lives. During her studies, she co-founded an online community for sportspeople and worked in marketing positions at Ogilvy & Mather Advertising and at the European Business Angel Network, in Brussels. She is a passionate blogger about crowdfunding and the startup ecosystem and she works also for the European Crowdfunding Network. |
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