Will the "robo-advisor" movement fundamentally challenge the traditional wealth management model and change the industry landscape? And, if the underlying changes are permanent, what should traditional firms do? George Triplow, Middle East & North Africa Leader at EY dives into whether robots are friend or foe
I have lost count of the number of times I’ve met someone who has said ‘robots will replace jobs through automation’. What about our industry where advice (and of course track record) is the differentiator.
The possibility of the emergence of a new group of digital wealth management firms offering automated investment advice services has quickly become one of the most frequently debated topics in the industry.
Comparisons are being made to the travel industry of the 1990s, when the travel agent model lost substantial ground to online services such as Expedia, and some media outlets and analysts are predicting that the emerging start-ups will revolutionize how wealth management advice is provided.
Yet others have discounted and labeled this “robo-advisor” movement as unproven and believe its solutions are no match for human personalized investment advice. In this context, we need to understand the innovations on offer and try answer some of the questions many in the industry will start asking.
Will it fundamentally challenge the traditional wealth management model and change the industry landscape? Is there a large enough market for their services beyond the young, tech-savvy client segment they have attracted so far? And, if the underlying changes (e.g., client experience, new potential client segments) are permanent, what should traditional firms do?
We believe that the most likely future scenario is for a broader, larger wealth management market serving clients across multiple segments (from mass market to ultra-high net worth) through fully automated solutions, traditional high-touch advisors, and hybrid versions of the two that combine virtual advisor interaction with automation and self-service technology-based tools.
We see a tremendous opportunity for both traditional firms and new digital entrants to improve the way advice is delivered and align the cost of advice delivery with affordability, perceived value and new client expectations.
Given such a scenario and considering the vast market opportunity, we see many traditional players revisiting their strategies. This next generation of clients has a different set of preferences and expectations that will affect how firms adapt and leverage digital strategies to serve them.
The fact that a few established players have recently announced their own direct-to-consumer automated advice offerings and/or continue to invest in phone-based services would appear to support this thinking. These “fast followers” could enjoy a first-mover’s advantage over the firms that seem to be observing cautiously from a distance how the digital advice space evolves. Traditional firms willing to venture into automated and hybrid models will face four main challenges.
Addressing these challenges is no trivial task. Considering the level of change management involved, as well as the resources and investment required, many firms will find it difficult to balance their efforts to change and, at the same time, manage the needs of their existing customer base. Yet for those firms willing to take the risk, the prospect of finally being able to tap into the potential of the mass and/or mass affluent market certainly offers a worthwhile reward. We see a tremendous opportunity ahead for both traditional firms and new digital entrants to improve the way advice is delivered and align the cost of advice delivery with affordability, perceived value and new client expectations.