February kicked off with a day of provocation and challenge at the Robo-Investing 2017 conference. Led by UBS SmartWealth, Moneyfarm & WealthWizard, the event delved into the depths of robo-advisory; from challenging the current business models to analysing further potential for technology and market progression.
Robo-advisory has taken over from the distributed ledger as the hot new topic. VC funds like Balderton, Anthemis and Index Ventures have jumped to invest in a variety of stand-alone robo-advisory firms. Nutmeg, Betterment and Wealthfront being the 3 most known.
The numbers don’t lie.
It is undeniable that the AUM robo-advisors manage is significant reaching £224 billion. The US, China and the UK are leading as the top 3 markets. AUM are expected to grow by 47.5% annually, with at least £1 trillion expected by 2021. Morgan Stanley predicts that global robo-advice AUM could even reach £6.5 trillion by 2025.
So who matters?
In Europe alone, there are 64 robo solutions live with 100 under development. In our view the players in the current market sit under 3 pillars:
The new kids on the block – The fully automated:
- Mainly start ups – e.g. Nutmeg, Betterment & Money Farm
- Fully automated with limited human interaction
- Risk options are limited
- Investments are solely with passive funds
- Their edge – early entrance in the market
Those hungry for change – The incumbents:
- New to the robo space – the likes of J.P Morgan are hoping to launch by the end of 2017
- Benefit of their existing brand and client network
However, their adoption to robo-advice is still a question.
UBS has spun out a specific SmartWealth ‘business in a business’ take on the robo opportunity. This has meant contracting outside developers and building the technology and proposition from scratch. Although the product and service will still be tied to the splendour brand name, the department is run like a nimble start-up.
Imagine the gravitas, history & imbued knowledge of the Swiss giant poured into a nimble, client obsessed robo firm. A hungry team access the investment strategies and balance sheet of UBS but with a very different attitude and approach.
Not only that, the team moved fast and are focused on serving their dream customer with precision:
“The only way for incumbents to succeed in this space is if they have clarity to what they are trying to achieve in the first place and manage how they will engage with legal, risk and compliance within their firm” – Nick Middleton, Co-Head of UBS SmartWealth.
The players applying a layer on-top – The ‘cyborg’
- Often wealth management firms who have added a layer of robo-technology to their system e.g. Vanguard and Schwabs, who are the most known to be adopting this method
- Injecting a “cutting-edge” and “innovative” approach in order to stay fresh for their long term clients
- These players are trying to generate edge, using the tech to give them competitive advantage
With an estimated 5 million people lacking advice, there is undoubtedly a market to be served.
The technology has proven it can shift this outdated industry, the next question to ask, how will the market scale beyond early adopters?
Whether firms are incumbents, wealth managers or fully automated start ups, to achieve mass adoption, they must have a better understanding of the drivers behind the psychology advice.
Why do some people choose to use robo-advisors? What are their drivers?
How can the market enhance the engagement and propositions to create the tipping point?
How much human interaction is necessary to build trust?
A word from CRUXY
We believe the tipping point will come when robo-advisory firms become obsessed with the specific audience they’re trying to serve.
Some are trying to win over millennials. How does having limited savings and knowledge about finance change the proposition for them? How will the onslaught of advice help if a base layer of knowledge is missing. This is where we are watching the big players going for this audience. How will they build partnerships with the likes of BlackBullion and Cleo?
On the flip side, in Europe where UHNWs are typically 50 plus and very traditional in their thinking and approach, the fully automated firms must accept that this segment do not all think and act in the same way. How will they balance focus together with finding those who will look to more technical ways to manage their nest egg? What are the emotional and physical signals these firms can send to people who might be fearful of not having one IFA to call? Or does that mean IFAs will sit on top of the technology and generate a new business model of their own? EQ Investors, Austym Smith Associates and Financial Management Bureau are prime examples experimenting with this idea.
The current market is only the tip of the iceberg.
Robo is more than a building block to transform the dated wealth management industry. It is a fundamental shift that will drive a different relationship with wealth. The democratisation of winning strategies at UBS demonstrates that.
In order to win and survive in this market, robo-advisory firms must become uncomfortably narrow and win over the single silo dream audience, before trying to convince the rest.