According to a new report released by Deloitte, wealth management in the UK is being disrupted by robo-advisors as they attempt to remove assets from businesses in the form of client information and algorithms, so that portfolios can be automated according to how the client recommends.
In their report “Robo-Advisors Capitalising on a growing opportunity”, Deloitte explain that investment service companies known as robo-advisors, such as Betterment, Personal Capital and Wealthfront, can provide advice services on digital user interfaces.
Deloitte explores how the 11 leading robo-advisor firms have grown considerably recently. “At the end of 2014 these firms grew to 19 billion AUM (assets under management), a 65% growth from the previous eight months. However, these new market entrants are still nascent and represent a trivial amount relative to the $25+ trillion retail investable assets in the United States,” the report said.
Predictions for robo-advice in the wealth management industry remain positive, despite a lack of customers and this is due to the inexpensive, or occasionally zeros fees. Alongside this, some firms are becoming increasingly interested in big data and analytics, resulting in an expanded problem solving system which has the capability of being customised over time.
Due to the accessibility of new technology, it is easier for businesses to become involved in wealth management, and in turn, become viable competitors in their industry. Deloitte predicts that more asset management and insurance firms will use robo-advice, while others will choose to ignore this opportunity. “This may be the right decision in the short-term for wealth management firms that serve a high net worth client base that can afford person-to-person advice and have more complex financial and planning needs,” Deloitte reports.
Those firms that serve a mass market should use this opportunity to embrace digital tools to improve their company, as the report says that a hybrid service model will be the norm soon. In order to implement a robo-advice capability, Deloitte offers a three step plan, with industry examples. Firstly, partnering with an existing robo-advisor would enable the more traditional firms to react quickly and then develop an in-house solution for clients and investors.
The third step would be to acquire a robo-advisor, which should be chosen according to which firm would best fit with the organisation. “While this could be an accelerated route-to-market for traditional investors, acquisition has its risks. How the firm is able to effectively integrate the acquired platform within it existing infrastructure will be key,” the report warns.
Deloitte concluded the report by explaining that automated advice will become more widely used and with big data and analytics, robo-advice has the potential to impact all industries, regardless of how much revenue they bring in.