The hard truth about the rise of robo advisors
October 3, 2016 3:10 PM
Robo advisors are here to stay, but some human advisers may not be.
The impact of digital advice is becoming clearer, says Chip Roame, managing partner of industry consulting firm Tiburon Strategic Advisors.
"It's shining a light on pricing in investment management," Roame explains while rounding up findings from his firm's new report, The Future of Wealth Management. "The robo trend is pointing out to consumers that professional wealth management is worth maybe only 25 basis points. That challenges pricing for advisors."
His firm now counts 51 robo advisors in the market, collectively managing close to $250 billion. "That's a lot of robos," he says.
Roame holds fast to his previous prediction that the digital offerings of established firms such as Vanguard and Schwab will ultimately dominate and remain sustainable, while independent firms such as Wealthfront, Personal Capital or Betterment may struggle.
Independent platforms claim just 3% of the digital wealth management industry's entire current AUM, he points out.
However, online advice continues to advance, having grown almost 1,500% since 2007.
"It's shining a light on pricing in investment management," Roame explains while rounding up findings from his firm's new report, The Future of Wealth Management. "The robo trend is pointing out to consumers that professional wealth management is worth maybe only 25 basis points. That challenges pricing for advisors."
His firm now counts 51 robo advisors in the market, collectively managing close to $250 billion. "That's a lot of robos," he says.
Roame holds fast to his previous prediction that the digital offerings of established firms such as Vanguard and Schwab will ultimately dominate and remain sustainable, while independent firms such as Wealthfront, Personal Capital or Betterment may struggle.
Independent platforms claim just 3% of the digital wealth management industry's entire current AUM, he points out.
However, online advice continues to advance, having grown almost 1,500% since 2007.
Robo growth
Defying early expectations, digital advice competition continues to grow. Independents such as Wealthfront and Betterment compete for clients against offerings from Vanguard and Schwab. There's now a new crop of robos touting their algorithms and AI-powered tech, such as Kavout and qplum.
Capturing clients, and assets
Digital advice as an industry is collectively managing close to $250 billion, having advanced from just $16 billion in 2007.
Small slice for independents
Tiburon researchers stress that though independent robo advisors garner plenty of attention, they control just a small fraction of total AUM in the digital wealth management space.
An engine for digital advice
Financial Engines is referred to as the original robo advisor. Working within the 401(k) plan space, it has amassed almost triple the AUM of its closest competitor. Note: AUM figures not current totals.
Creeping doubts about advisor value
A shared concern is that digital advice will commoditize financial planning. Tiburon's Roame notes that there's been a decrease in opinion among industry leaders that clients will continue valuing advisors.
Artificial competition
Financial professionals, including advisors, will face increased pressure from artificial intelligence-enabled wealth management platforms.
Gaining a digital edge
There's a clear preference among HENRYs to work with the latest tech tools. Yet, Corporate Insight points out, "full service brokerage firms, the nation's largest employer of financial advisors, continue to offer inferior digital experiences compared to those seen at hybrid brokerage firms like Fidelity, Charles Schwab and E-Trade."
