Latest News  

Robots will change the wealth management industry

Automated financial advisors, or robo-advisors, have enjoyed a brilliant start off the blocks in their race to disrupt the market for personal wealth management.

2016-01-06 10:53:56

They attracted an eyepopping $427 million in venture capital (VC) funding in 2014 and gathered some $19 billion worth of assets under management on the back of 2013-14 asset growth of 64%, writes Reuters. But while their rise has been meteoric, robo assets under management comprise a miniscule .38% of the $5 trillion retail market for financial advice.

So are robos a harbinger of an imminent "FinTech" revolution that will bring down the big banks or a dot-com-worthy example of supercharged burn rates on a road to nowhere? Their true significance may be an order of magnitude greater than either of these scenarios suggest.

Robos provide basic liability assessment, portfolio analytics, asset allocation/rebalancing and tax loss harvesting (the systematic sale and replacement of money-losing securities to offset taxes on capital gains) for 25-30 basis points in fees, (.25% - .30% of assets under management) plus some 15-30 basis points for underlying funds – a 50% - 75% discount on the 100-200 basis points charged by most traditional advisors.

What's more, most robos offer to manage as little as $5,000 - $10,000, where traditional broker-dealers and registered investment advisors (RIAs) usually can't afford to service portfolios of less than $500,000 - $1 million. Robos have astutely aimed their services at an underserved, but fast growing, mass affluent market composed of millennial HENRYs (High Earning, Not Rich Yet). HENRYs are 18-34 years old with $50,000 in assets and annual incomes of at least $50,000; they can also be 35+ years old with $50,000 - $500,000 to invest.

In considering the rise of robos, it's interesting to do so in the context of other industry developments. In the 1980s, when simple stock trades could cost up to $100 per transaction, dozens of "discount brokers" rode the wave of commission deregulation to take on Wall Street, morphing into the first Internet brokers. Many are gone, but Schwab, Fidelity, TD Ameritrade, Interactive Brokers and Vanguard are today pillars of the industry, with diversified businesses, intermediated by constantly evolving technology.

Then there was the rise of low-cost Exchange Traded Funds (ETFs). Over the past 25 years, U.S. ETFs have evolved into a $2 trillion industry segment. ETF assets today are expanding by 24% per annum – triple the rate of traditional mutual funds. Notwithstanding their popularity, ETFs have fallen well short of displacing the $16 trillion mutual fund industry. But over the long term, on current rates of growth, mutual funds and ETFs will reach parity at $50 trillion each by 2030.

Discount brokers and ETFs were revolutionary in their time. But there was no revolution. Both have long since intertwined, commingled, gone into business with and been acquired by traditional financial advisors and mutual fund complexes. Today's robos are only the latest wave of technology and innovation to wash up on the shores of U.S. wealth management.

And robos are not alone. While a promising new financial technology, they are but one element of a vast, cloud-centric, mobile-capable, socially driven transformation in progress under the FinTech banner. The 2014 wave of investment in robos comprised only 3.5% of the $12 billion global investment in FinTech that year. Innovation is rampant across the ecosystem – not only in wealth management, but also in e-invoicing and payments, crowdfunding, marketplace lending, insurance, risk and security, equity financing, remittances and socially sourced investment research.


0 COMMENTS ^ Go back to Top
WRITE A COMMENT ^ Go back to Top
 
Your email address will not be published.
Nickname
Email
Comment
Validation Code
   
 
 
NEWS
Smartree: Software development field interests Romanians living abroad

Romanians abroad wishing to return to the country could be attracted by the IT domain, and more precisely the software development branch, according to a study conducted by Smartree.

 Read Full article »
Norwegian software developer leases 4.200 sqm in Iulius' Unites Business Center 3

Iulius Company and Visma Software, a Norwegian developer of business management software solutions, have signed a lease agreement for office premises within the United Business Center 3 (UBC 3) office building

 Read Full article »
Oracle hires 1000 sales representatives to boost cloud services in EMEA

Oracle announced 1000 new jobs in Europe, Middle East and Africa. Under the Change Happens Here banner, the company is hunting for the next generation of ambitious, driven, digitally savvy Sales Representative

 Read Full article »
Academy Plus programming school opens at Bucharest with 120 available places

ACADEMY+PLUS, the free of charge programming school launched three years ago at Cluj in partnership with École 42 in Paris, opens also at Bucharest with 120 available places to those who want to learn programm

 Read Full article »
AI to drive GDP gains of 15.7 trillion dollars with productivity, personalisation improvements

Global GDP will be 14% higher in 2030 as a result of AI – the equivalent of an additional 15.7 trillion US dollars, a recent research report of PwC states. This makes it the biggest commercial opportunity in

 Read Full article »
TotalSoft appoints Adina Gurgu as Chief Technology Officer

TotalSoft, one of the leading ERP and financial solutions providers internationally, announces the appointment of Adina Gurgu as Chief Technology Officer (CTO), who will be starting August responsible with spea

 Read Full article »
Czech ALEF Group acquires local company and enters Romanian market

Czech IT systems and equipment supplier ALEF Group announced it had acquired Romanian peer company Likeit Solution for an undisclosed sum.

 Read Full article »
3Pillar Global expands with third development center in Romania

US-based IT services provider 3Pillar Global will open the third development center in Romania this August, in Iasi, to be locatedin Moldova Business Center.

 Read Full article »
DB Global Technology reaches 800 people, 150 people joined this year

B Global Technology, Deutsche Bank's technology center in Bucharest, has reached the 800 staff milestone, with over 150 people joining the team in 2017.

 Read Full article »
Regional operations centers give Romania's real estate market a boost

With a 4.8 per cent GDP growth in 2016 and the highest estimated growth rate in 2017 among EU member states, Romania has become an increasingly attractive destination for regional operations centers.

 Read Full article »
 
MOST RECENT VIDEO
 
 
MOST READ ARTICLES
» ROMANIAN OUTSOURCING AWARDS FOR EXCELL...
» EY: Work-life balance has become more ...
» Stefanini officially launches the offi...
» Romania ranks second in Deloitte's CE ...
» Welcome onboard!
» Bombardier: from Bucharest subway to t...
» Exclusive OT print issue: Genpact may ...
» Endava and Worldpay to create a center...
» Manpower:Romania has world's third hig...
» GM to open a call center at Bucharest
 
EDITOR CHOICE
EY: Work-life balance has become more difficult to be managed by one third of full-time employees in 8 large countries

EY's global survey of full-time workers in eight countries finds that one-third say managing work-life has become more difficult, with younger generations and parents hit hardest.

 Read Full article »
Welcome onboard!

By 2020, some 200.000 people are expected to work in business shared services in Romania, doubling the current employment portfolio enrolled in more than 120 companies operating BPO, SSC or ITO services. Howeve

 Read Full article »
Thierry Blain, SG EBS: Bringing teams to the next level

The journey of Societe Generale European Business Services began with the need for a strategic location to sustain and transform European operations of Societe Generale Group. The purpose was, from the early da

 Read Full article »
TELUS International Europe: Issue 3 - Customers First magazine! Strategy and innovation in travel and hospitality

The third issue of our Customers First magazine is now available! The latest edition is all about travel and hospitality, featuring insights from industry experts and top brands like JetBlue, Turo, Joie de Vivr

 Read Full article »
The future is now - Review of Romanian Outsourcing Summit, 2017

Romania delivers services in 25 languages with more than 100,000 specialists employed in the outsourcing industry and business services, and based on an estimated growth of 15-20 per cent, it is estimated to re

 Read Full article »
Latest News  
 
about us | newsletter | contact | members area
Copyright © 2015 by Diplomat Media Events Design by Diplomat Media Events