Despite mounting evidence that standalone robo-advice companies are struggling to attract affluent investors, the technology can still offer a competitive edge for traditional wealth managers, says digital media company Global Data.
The firm argues that robo-advisers by themselves cannot attract assets under management but that their true value lies in the growing demand for technology.
The statement comes as New York-based robo-adviser Hedgeable announced it was calling it quits on 9 August, just short of its 10-year anniversary.
Hedgeable’s decision to close follows in the footsteps of several other standalone robo-advisers, including WorthFM, SheCapital and Owners Advisory.
AUM struggle
Global Data says the closure of the platforms shows that robo-advisers are struggling to attract assets under management (AUM).
“In addition, high net worth (HNW) investors are not flocking to transfer their assets to standalone challenger platforms,” the firm said.
The data and analytics company points to its 2018 survey of wealth managers, which found that just 10% of private wealth managers feared they would lose market share to robo-advisers over the next 12 months.
Volume play
Andrew Haslip, financial services analyst at Global Data, says: “When a key selling point of the service is its low costs, you have to have a mass market strategy. In other words, in order for any robo-adviser to be successful, it must be attracting AUM in the billions of dollars.
“Robo-advice is a volume play, not a margin play, so the boutique specialist angle is not practical.”
Competitive edge
Despite the drawbacks for robo-advice, Global Data’s research also found a growing demand for the technology, with 40% of private wealth managers noting strong demand for the technology from their clients.
Haslip said investors are increasingly looking at it as a tool that every wealth manager should be deploying.
“Despite some drawbacks, robo-advice is a competitive advantage that all traditional wealth managers must acquire.
“They are not about to lose their best HNW clients to a start-up robo-adviser, no matter how slick the digital interface. But they might just lose out to a competitor that has adopted the technology and integrated it into its overall private wealth management proposition.
“Although ultimately the human element will remain prominent in the world of financial advice, the industry will continue its technological advancement,” Haslip said.
