Robo-Advisors in Flux
Systems provided by innovative fintech vendors and digital wealth managers have failed to engender disruption in the wealth management space
Robo-advisory services will advance through a business model that will afford them the depth and breadth of clients needed to be profitable
LONDON – 11 January 2017 – A new report from GreySpark Partners, a leading global capital markets consulting firm, details the advent of robo-advisory services in the investment management space. Emerging nascently in the early 1990s, in 2017 robo-advisory service provision gathered pace in 2016 due to advances in the primary underlying investment vehicles used by the majority of robo-advisors – exchange-traded funds (ETFs) – as well as the prevalence of Web-based applications usage among target clients and the arrival of innovative fintech players in the capital markets space.
The report, The Evolution of Robo-advisory Services, sets out the current robo-advisory landscape that is characterised by a business-to-client (B2C) model and an advancing business-to-business-to-client (B2B2C). Innovative fintech players, or digital wealth managers, that target a client base of high net worth individuals and retail clients with assets under management of less than USD 10m – not traditionally serviced by institutional wealth managers – are struggling to derive profits from their low-cost service models that operate under high customer acquisition costs. Institutional wealth managers – in response to client demand for online services and the potential threat that fintech and digital wealth managers pose – are increasingly investing in robo-advisory service tools and platforms, with many looking to current market participants as potential acquisition targets.
GreySpark identified numerous drivers and challenges at play in the robo-advisory space in the report that characterise the industry, including:
- Regulations – regulators and financial services governing bodies are not yet pushing robo-advisory specific agendas, but are working towards creating an environment that supports their advent;
- Investment strategies – a general shift from actively-managed to passively-managed strategies by investors as active strategies come under increasing scrutiny regarding their fees structures and overall returns is pushing investors towards ETFs;
- Client on-boarding costs – the costs of customer acquisition for fintech players and digital wealth managers are undermining the B2C model and are advancing the case for B2B2C-provided robo-advisory services; and
- Independent advice – tied-advisory services are being displaced in favour of independent, commission-based advisory services wherein investment bias is mitigated as advisors are not receiving commissions from product manufacturers.
Dominic Cho, GreySpark managing consultant and report co-author, said: “We are seeing the robo-advisory services space move towards robo 3.0, wherein robo-advisors achieve a critical mass of clients via the adoption of the B2B2C business model.”
Saoirse Kennedy, GreySpark senior consultant and report author, added: “In this era of advancing sophistication of robo-advisory services, non-financial players with a depth and breadth of clients will begin to enter the space, the industry will be further bolstered by the data-rich nature of robo-advisory platforms and artificial intelligence technology will begin to strengthen its footing in the investment management space.”
Data extraction and integration is the second stage of a digitization process.
Project Ion has shown that T+1 or T+0 settlement are effective use cases for DLT.
Jump Trading is undergoing its next evolution with the rise of open protocols and DeFI.
Clients can trade crypto plus stocks, options, futures, bonds, mutual funds and ETFs from a single screen.
Increased electronification has created useable and accessible real-time and historic trade data.