01.11.2017

Robo-Advisors in Flux

Systems provided by innovative fintech vendors and digital wealth managers have failed to engender disruption in the wealth management space

Robo-advisory services will advance through a business model that will afford them the depth and breadth of clients needed to be profitable

LONDON – 11 January 2017 – A new report from GreySpark Partners, a leading global capital markets consulting firm, details the advent of robo-advisory services in the investment management space. Emerging nascently in the early 1990s, in 2017 robo-advisory service provision gathered pace in 2016 due to advances in the primary underlying investment vehicles used by the majority of robo-advisors – exchange-traded funds (ETFs) – as well as the prevalence of Web-based applications usage among target clients and the arrival of innovative fintech players in the capital markets space.

The report, The Evolution of Robo-advisory Services, sets out the current robo-advisory landscape that is characterised by a business-to-client (B2C) model and an advancing business-to-business-to-client (B2B2C). Innovative fintech players, or digital wealth managers, that target a client base of high net worth individuals and retail clients with assets under management of less than USD 10m – not traditionally serviced by institutional wealth managers – are struggling to derive profits from their low-cost service models that operate under high customer acquisition costs. Institutional wealth managers – in response to client demand for online services and the potential threat that fintech and digital wealth managers pose – are increasingly investing in robo-advisory service tools and platforms, with many looking to current market participants as potential acquisition targets.

GreySpark identified numerous drivers and challenges at play in the robo-advisory space in the report that characterise the industry, including:

  • Regulations – regulators and financial services governing bodies are not yet pushing robo-advisory specific agendas, but are working towards creating an environment that supports their advent;
  • Investment strategies – a general shift from actively-managed to passively-managed strategies by investors as active strategies come under increasing scrutiny regarding their fees structures and overall returns is pushing investors towards ETFs;
  • Client on-boarding costs – the costs of customer acquisition for fintech players and digital wealth managers are undermining the B2C model and are advancing the case for B2B2C-provided robo-advisory services; and
  • Independent advice – tied-advisory services are being displaced in favour of independent, commission-based advisory services wherein investment bias is mitigated as advisors are not receiving commissions from product manufacturers.

Dominic Cho, GreySpark managing consultant and report co-author, said: “We are seeing the robo-advisory services space move towards robo 3.0, wherein robo-advisors achieve a critical mass of clients via the adoption of the B2B2C business model.”

Saoirse Kennedy, GreySpark senior consultant and report author, added: “In this era of advancing sophistication of robo-advisory services, non-financial players with a depth and breadth of clients will begin to enter the space, the industry will be further bolstered by the data-rich nature of robo-advisory platforms and artificial intelligence technology will begin to strengthen its footing in the investment management space.”

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