The Rise of Robo-Advisors In Wealth Management
The rise of Robo-advisors has disrupted the wealth management industry considerably. This digital wealth management experience is very distinct from traditional archaic financial practices of days gone by and merits a closer study.
What are Robo-advisors?
Robo-advisors simply explained are automated algorithms. They can be further defined according to the functions they perform:
I. They are financial advisors that provide portfolio management services online.
II. They are artificial intelligence-backed wealth management entities giving financial advice.
Robo-advisors are not designed to replace human interaction with private bankers and managers; instead, their role is strengthening the services offered by these wealth managers.
Why corporations should care for Robo-advisors
Technology is now an integral part of the banking experience. We have seen the financial landscape change dramatically within the last two decades owing to such innovations as challenger and neo banks. And we will continue to see transformations in the wealth management sector as more technology is adopted. Failing to adapt and integrate these systems will see wealth managers struggle to retain market share and profitability.
Advantages provided by Robo-advisers
This new wealth-tech innovation brings with it a series of advantages for both consumers and wealth managers. Here are three such pros.
- Accessible, affordable, and convenient wealth management advice for the nouveau riche
- There are now more self-made millionaires than ever before. In fact, 88% of today’s millionaires have not inherited their money. With technology being such a large part of our day-to-day interactions, it’s not surprising to learn that most nouveau rich and the High Earners Not Rich Yet (HENRYs) are on board with digitalizing the wealth management experience. The rise of Robo-advisors works in their favor.
- Robo-advisors make it possible to enjoy lower investment management fees
2. Financial advisors are key for those seeking professional wealth. management services. However, the fees don’t come cheap. In the U.S., the average fees hover around 1.02% of assets under management per year for accounts worth $1 million.
The use of Robo-advisors means investors can anticipate lower investment management fees as well as lower minimums per transaction.
3. Robo-advisors can offer tailored advice to various investors
In their 2019 Global Wealth Wealth Management Research Report, EY managers had this to say, “Our research finds over 80% of clients express interest in financial advice and planning, yet half remain on the sidelines.” Wealth management is in high demand but clients aren’t fully engaged. Why?
Several reasons were proposed including clients’ need for “simple, personalized and connected solutions over individual products and services.” Put another way, investors of varying wealth levels are seeking customized advice.
Robo-advisors have an advantage here and can provide more efficient management of investments as well as detailed advice for rookie investors. The unbiased transparency and projected performances are welcome initiatives by less sophisticated investors.
The bottom line
The rise of Robo-advisors should not be overlooked by wealth managers. Efforts should be made to integrate such algorithms into their product offerings and customer service protocols. It can go a long way in streamlining the end-user wealth management experience.
Read more about the growing importance of technology in Fintech in my blog: Why AI & Machine Learning Are More Important Now Than Ever