Boston-based analytics company Cerulli Associates said large retail firms are now offering digital advisory services that manage more assets than any of the start-ups that pioneered this product category.
It is these large financial firms entering the market which Cerulli said will be one of the main drivers of growth for digital advice.
Considerable marketshare
“In the short time that retail firms have been offering digital advisory services, they have captured considerable marketshare,” the company said in its latest report Addressing Millennials, the Mass Market, and Robo-Advice.
Tom O’Shea, associate director at Cerulli said the increased use of digital advice providers, or ‘robo-advisers’, is fuelled by their “compelling” proposition, offering low-cost portfolios coupled with consumers’ expanding interest in passive investing.
"We anticipate that most, if not all, retail direct firms will have a digital advice offering within the next three years"
“In addition, we anticipate that most, if not all, retail direct firms will have a digital advice offering within the next three years, and traditional advisers will also launch digital offerings for lower-balance investor accounts,” he said.
Inaccurate
Since the dawn of robo-advice, industry professionals have argued that one key issue with digital advice is that it omits human interaction from the portfolio-building process, but O’Shea disputed this claim, calling it “inaccurate”.
“Many of the top digital advisers considered to be ‘robos’ augment their delivery of advice with access to humans through a toll-free phone number and chat,” he said.
“With retail direct firms adding digital advice solutions, and digital advisers using service representatives to support online advice, the two channels are converging.
“Both types of providers are moving toward a model that combines online advice with human support.”
Reaching out
O’Shea argued that for digital advisers to be successful, they need to develop a strategy that incorporates the human element into their business model.
“While some consumers may feel comfortable receiving all of their advice digitally, never interacting with a person, this is a small segment of the overall population.
“Most consumers want to know that they can reach out to a person to solve a problem with their finances should the need arise.”
