Robo-advice is a hotly debated topic in the fintech space. On the one hand it has opened up the low-wealth market, that was previously unservable, to be advised at lower costs and increased transparency. On the other hand, it is often a dressed down version of full advice, only considers a limited number of asset classes and, potentially, fails in risk categorization.
Robo-advice has become a catch-all term for digital progress in wealth management. Current robo-advice platforms are not very sophisticated and have difficulties to be economically viable on a stand-alone basis. However, it would not be wise to consider robo-advice a hype that will have no impact on wealth management. We believe current robo-advice solutions will evolve into robo-advice ‘10.1’, which will be much more complete in terms of customer profiling and asset allocation. This is not the time for complacency and serious investments by incumbents are required for them to remain relevant.
Important drivers of robo-advice demand are the shift in social-security schemes, especially the change from defined benefit to defined contribution pensions, the availability of technology that makes the advice process cheaper, and also a more general regulatory push. In many countries there is an advice gap, which implies that people who should be advised on their finances in order to prepare for the future are currently being left out because their wealth level is insufficient. The introduction of technology allows a larger part of the un-served to be reached and this is actively stimulated by several regulators.
However, reaching many people with cheap solutions might come at a price. In current offerings, people are not receiving the level of advice that they should be receiving. Besides that, there is too much focus on pricing. This is too one-dimensional, as it is more important to present customers with a complete view and proper advice, taking into account many different aspects of the financial planning value-chain, than to be the cheapest.
We expect the potential market size for robo 10.1 to be around USD 30 trillion in assets under management (AUM) by 2025. This compares with estimates by the market of between USD 5 and 10 trillion today versus current AUM of USD 100 billion. We see two important considerations lacking from current estimates. The first one is that robo-advice offerings as we see them today add little value to the top of the wealth pyramid and are, therefore, not used by this customer group. We think that robo 10.1 will be able to add value to a much larger part of the wealth pyramid, which will make the total addressable market much larger.
Besides our view that robo-advice will become more sophisticated and attract a larger customer group, we also believe the robo-solutions will be used more often in a B2B setting. We see potential for automated advice to be used as an input source for traditional advice. The combination of man and machine was dubbed cyborg-advice in our previous whitepaper ‘The future of asset management’ (2016). Once the proliferation of technology progresses from a B2C setting into a B2B offering, the addressable market will grow with it.
There are several scenarios for the development of robo-advice. We believe the scenario of stand-alone growth is least likely. We think a lot of platforms will merge with financial institutions that own the customer database, as acquisition costs are a make-or-break input in many models. We see several existing companies such as Schwab, Vanguard and Fidelity integrating robo-solutions into their current offering. We expect technology providers and the tech-savvy asset and wealth managers to come out as long-term winners. Those that are still complacent about all technological changes in their industry are bound to be challenged.
The content displayed on this website is exclusively directed at qualified investors, as defined in the swiss collective investment schemes act of 23 june 2006 ("cisa") and its implementing ordinance, or at “independent asset managers” which meet additional requirements as set out below. Qualified investors are in particular regulated financial intermediaries such as banks, securities dealers, fund management companies and asset managers of collective investment schemes and central banks, regulated insurance companies, public entities and retirement benefits institutions with professional treasury or companies with professional treasury.
The contents, however, are not intended for non-qualified investors. By clicking "I agree" below, you confirm and acknowledge that you act in your capacity as qualified investor pursuant to CISA or as an “independent asset manager” who meets the additional requirements set out hereafter. In the event that you are an "independent asset manager" who meets all the requirements set out in Art. 3 para. 2 let. c) CISA in conjunction with Art. 3 CISO, by clicking "I Agree" below you confirm that you will use the content of this website only for those of your clients which are qualified investors pursuant to CISA.
Representative in Switzerland of the foreign funds registered with the Swiss Financial Market Supervisory Authority ("FINMA") for distribution in or from Switzerland to non-qualified investors is Robeco Switzerland AG, Josefstrasse 218, 8005 Zürich, and the paying agent is UBS Switzerland AG, Bahnhofstrasse 45, 8001 Zürich. Please consult www.finma.ch for a list of FINMA registered funds.
Neither information nor any opinion expressed on the website constitutes a solicitation, an offer or a recommendation to buy, sell or dispose of any investment, to engage in any other transaction or to provide any investment advice or service. An investment in a Robeco/Robeco Switzerland AG product should only be made after reading the related legal documents such as management regulations, articles of association, prospectuses, key investor information documents and annual and semi-annual reports, which can be all be obtained free of charge at this website, at the registered seat of the representative in Switzerland, as well as at the Robeco/Robeco Switzerland AG offices in each country where Robeco has a presence. In respect of the funds distributed in Switzerland, the place of performance and jurisdiction is the registered office of the representative in Switzerland.
This website is not directed to any person in any jurisdiction where, by reason of that person's nationality, residence or otherwise, the publication or availability of this website is prohibited. Persons in respect of whom such prohibitions apply must not access this website.