March 4th, 2019
The last several years has seen a lot of press1 and outright hype about the digital wealth offerings Robo-Advisers present; how they are transforming wealth management and the way investors consume services. Chelmer Chief Innovation Officer Andy Robertson shares his views on where self-managed business models like Robo fit into the financial services landscape, the challenges they face and what we can expect once the hype is over.
The Robo uprising
Robo-Advisers first appeared around 2008 and grew in popularity, offering a more accessible, low-cost alternative to traditional 'human' financial advisers.
The rush of startups into this space over the last decade has now slowed to a trickle or completely stopped. Key players in the USA such as Betterment and Wealthfront are managing billions of dollars of funds, while many others have either folded, been bought by an established traditional wealth firm, or been quickly surpassed by exchange-traded fund (ETF) product offerers.
Financial services is a challenging and competitive industry. There has been some very detailed industry analysis with some frankly scary numbers on the amount of funds under management (FUM) a Robo-Adviser needs to break-even – and the recognised names that remain are still a long way from achieving that level of FUM.
Another service, same challenges
For those of us who have been around for a while, it's a reminder that despite all these advances in technology and the speed of change in the financial services industry, patterns and cycles repeat. The Robo story of this decade is the Internet Broking story of the 90s: the story of revolutionising an industry, empowering the investor, lowering fees and providing self-managed services. It seems the challenges are the same, and the results look to be heading the same way too.
Technology has provided more tools and more channels that didn’t exist in the 90s, yet the speed and cost of acquisition hasn’t significantly changed. Customer acquisition is a massive cost and the number one impediment to any new financial services paradigm.
Like Internet Broking, only a small number of Robo-Advisers will survive, and most will manage that through hybrid business models and forms of B2B2C rather than strict B2C business models to overcome the challenges they face.
As a technology provider to the financial services industry, we have a neutral perspective on our partners' business models, but we support any business that looks to make wealth creation simple and accessible to the masses for the good of society. It's healthy to have debate and passionate people explore how to best achieve that.
Every service model will make an impact, and ultimately we will see the best parts from different models find their way into the others.
I think we can confidently say the Robo uprising is over and world order has not been upended. That does not mean the death of the Robo business model. Like Internet Broking, it will take its place as another channel, another service model and appeal to a certain type of investor.
Individualised experiences and solutions
Surely that is the key message: to be truly successful and thrive in the age of digital transformation requires an ability to provide an individualised investor experience at scale – rather than a standard, one-size-fits-all approach. This is a key focus for us at Chelmer and something we strive to provide our clients and their customers through our technology.
The primary differentiator of the Robo offering is the ability to deliver a customised asset allocation chosen by the investor, both quickly and at scale. As technologists, we know this isn’t some modern age R2D2 in the background dreaming up an awesome asset allocation – it’s just the same sort of technology that has been around for a while being delivered directly to a new audience.
It's fair to say that Robo technology is here to stay. It has a place, but hasn’t stolen the show. Robo-Advisers will become mainstream for investors and advisers alike, and traditional adviser models will continue to meet the unique needs of investors.
Over the next several years, we should see a further unbundling of the wealth offerings where asset allocation as a service can be consumed and made available at commercially acceptable rates, without any necessity to define whether it’s an adviser or investor that’s consuming it.
This leads to an interesting discussion around how to efficiently achieve individualised asset allocation and the future for unitised products – but that’s a topic for another day!
About the author
Andy Robertson, Chief Innovation Officer
With a 30+ year career in financial markets and financial services technology, Andy is our ‘go-to’ for all things FinTech. As our Chief Innovation Officer, his focus is on driving our product, service and market innovation through best-of-breed technology and shaping the future of investing and wealth management for our clients.