The rapid maturity of digital-advice technologies will reach the highest strata of wealth management in 2017, according to industry analysis firm Aite Group.
Alois Pirker, research director at Aite, sees the market moving into a third phase, in which full-service wealth managers roll out their own platforms.
The first phase, which began before 2015, saw the initial digital advice startups reach a few billion dollars in assets under management, he said. “Now some of them are approaching the $10 billion asset mark, but it has been an uphill struggle to on-board assets.”
The second phase took place between 2015 and 2016, where online brokers and some asset managers began implementing platforms.
“Charles Schwab and Vanguard have led the way here,” Pirker said. “Both have onboarded tens of billions of dollars in assets on to their platforms quickly, and the growth continues to accelerate. We’ve also seen firms with hundreds of billions and a couple trillion dollars of assets leveraging the technology to segment their books.”
As the new online offerings become more democratized across the various class of investors, Pirker has observed that online brokers and asset managers look to offer more sophisticated investment management for between 40 and 45 basis points rather than compete with the startups by going to the bottom of the pricing scale.
However, these platforms likely will not be developed purely internally by the asset managers, according to Isabella Fonseca, senior analyst at Aite.
“Wealth manager today know that they do not know it all and cannot do everything under their own roof,” she said. “They need to look beyond their walls and establish working relationships with other firms to remain competitive.”
Fonseca expects that the industry will see more wealth managers acquiring technology startups like BlackRock’s 2015 acquisition of investment-advice startup FutureAdvisor and UBS Wealth Management Americas’ 2016 investment into SigFig.
“These firms will get access to off-the-shelf digital solutions and a new channel to diversify their business,” she said.
This technology will be critical for wealth managers as asset managers refocus their business propositions to serve their clients with lower amounts of assets with less labor and service-intensive offerings that previously were only available to the high-net-worth clients of the firms, Fonseca explained.
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