Robo advisors and fintech startups will see much growth in the next five years, but researchers say established players will keep their AUM edge and become more digitally competitive too.
Robo startups are expected to reach $452 billion in AUM in five years, but incumbent firms will possess over $1 trillion in AUM in the digital automated advice space, according to Steffen Binder, managing director and co-founder of MyPrivateBanking Research, a finance research firm based in Switzerland.
Currently, the market for robo advisors is worth $20 billion AUM with over 200 players in America alone, Binder said. That dollar figure represents .01% of overall managed assets worldwide, he added.
Binder expects most traditional firms will have digital automated advice offerings in the next two years and give them a further advantage.
"The established firms will beat the new robo startups in the next five years," Binder told the audience at SourceMedia's InVest 2015 conference on digital disruption in wealth management on Friday in New York.
However, Binder raised the specter of market competition widening in the near future with the entry of Google, Apple, Facebook, Amazon, and Alibaba, who all are interested in the advisory space, he said.
"They are taking steps and analyzing this market. It will be a different game when they enter. They can very disruptive to other players," said Binder.
SIGNIFICANT PRESSURE
Consulting firm A.T. Kearney offered its own predictions about robo advisor growth. It projected robo advisor overall AUM to increase 68% annually to about $2.2 trillion in five years. Roughly half that amount would come from money that's already invested and the rest from non-invested assets, the firm said.
The firm surveyed over 4,000 American consumers, and just over half expressed an interest in using a robo advisor.
The survey results suggest that some traditional bank and investment products could be vulnerable to robo advisors, such as money market accounts, said Bob Hedges, a partner in the financial-institutions practice at A.T. Kearney.
"In the near future, the price pressure of robo advisors on traditional financial advisor model is going to be significant," Hedges said.
Among robo startups, Wealthfront is ranked as the most disruptive due to its large AUM, cost advantage, ease of use, and mobile capability, Binder said.
But it's not immune to competition because of ease of entry into the market as seen by the splash made by Charles Schwab and Vanguard, he added. "There is not a big moat around robo advisors," he said.
While projections point to the domination of the market by established firms, it still remains to be seen, said audience member, Penny Duan, head of partnerships at Decimal, a cloud computing company that caters to financial services sector.
"I think at the end of the day, it is consumers who will drive innovation," she said. Even if you have a great footprint, but if user experience is lousy, nobody will use it."
With reporting from Bloomberg News.
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