Automated investment services, aka robo-advisors, seemed like a distant destination just a little while ago. Yet financial institutions globally, and no less in Asia, are travelling that road faster than any of us might have expected.
In 2014, robo-advice platforms were for most of the wealth management industry an amusing buzz-word that raised a fair degree of skepticism among established players. By 2015, we witnessed an explosion of platforms in developed markets, coming not only from start-up companies on the periphery but also from the big guys themselves. Before the year was through, names such as Vanguard, Charles Schwab and Deutsche Bank had already come out with an automated investment platform or were developing one. The times they are a-changin’ (apologies to Bob Dylan) – and quickly.
Entering 2016, it’s evident that the wealth management industry is full of chatter of how to deliver a better digital investment experience to clients. Banks, brokers, asset managers, financial planners and even regulators have automated investment services on their radar. Direct-to-consumer robo-advice start-ups continue to proliferate across various regions. Institutional platforms are focusing on when and how, rather than if.
BlackRock CEO Larry Fink’s view on robos was recorded last year at the Bernstein Strategic Decisions Conference in New York: “I actually believe those kinds of tools are like an ATM machine. We are all going to have to have it.”
Part of the uptick in pace has been the realization that robo-advice is so much more than the sum of its parts – and as such a poorly chosen media moniker that stuck. Instead of being a threatening disruptor, automated investment platforms are increasingly seen as a technology enabler that offline players can use to empowering their advisors and service more customers better.
There are three key drivers that have shifted the strategic focus of financial institutions:
- The realization that the majority of individual investors, ranging from the emerging affluent to the high-net-worth demand a digital experience to manage their wealth.
- The recognition that the digital opportunity is not only too big to ignore but also the only way for some organizations to profitably service the emerging and mass affluent audiences. Characterized by low account balances, these groups are costly to service with offline wealth management models.
- The emergence of providers of software as a service (SaaS) that enable a financial institution to de-risk the puzzle of how to deliver an automated investment service to clients. Some financial institutions find themselves already behind their competition and therefore speed to market is a key consideration.
As the saying goes, you can’t get the toothpaste back in the tube. A digital transformation of wealth management is already underway. The race is now on to see who is going lead with these technologies. The prize for the winners will be to profitably win incremental market share.