Low cost, automated investment advice is set to become the core of financial planning services, with market potential of $19.5 trillion assets under management, according to a new report by Ignition House, the financial services experts, and The Business Research Company. The ‘Robo Advice: Revolution or Evolution?’ Report argues that as awareness of automated options increase, and assets under management grow, many consumers and institutions will want to move away from expensive traditional investment advice into low cost automated options. This will initially be driven mainly from the corporate level, with large client wins by institutional robo offerings, and later by consumer focussed services.
The robo advice market is set for explosive growth, and we at Ignition House are excited to be the go-to authority tracking its development commented Janette Weir, one of the report’s authors.
The report shows that the current market for robo advice is dominated by the USA, with an estimated $1.2 trillion under management. The favourable regulatory environment, the high propensity to save in equities and the size of the retirement savings market all mean that the US is the most promising market for robo advice. India and China present long term opportunities but continue to be tied to traditional property, gold and money market fund investments. In Europe the UK looks set for growth with major pension funds available for investment and a positive environment for fintech.
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Table Of Contents
EXECUTIVE SUMMARY
Robo advice is not a new concept, but is gaining a lot of global attention
There are far fewer pure robos than the media would have us believe
Focus is on automated investment management; there are very few automated advice propositions
Early movers built from scratch, but start-ups are now seeking to build partnerships with established players
Low cost automated investments will become the core building block of financial planning
Many of the ‘me too’ automated investment propositions will fall by the wayside unless they continue to develop
The market for automated investment management services will grow significantly, but hybrids will be the dominant model
The addressable market for virtual advice is huge, but very few propositions have come forward to meet this demand
WHAT IS ROBO ADVICE?
Robo advice: a catch all term for remotely delivered wealth management
Defining ‘robo advice’
Automated investment management solutions are the dominant model; but how automated are they?
There are only a handful of automated financial planning propositions in the market today
Why is ‘robo advice’ under the spotlight?
Propositions are only as good as the algorithms
EMERGING BUSINESS MODELS
Pure play start-ups have led the charge to date
The cost of acquisition is the elephant in the room for start-ups
Re-focus on the B2B market to drive profitability
Industry stalwarts are now seeing the potential of automation; and have important strategic advantages over the start-ups
Which play will the current incumbents make – build, partner, or buy?
In the B2B space, robo for advisers is nothing new, but some are now embracing the opportunity to expand the reach of their business
Robo advice will place widespread pressure on margins and fees
The impact on the advice market will take longer to play out, and will result in advisers ultimately moving up the advice value chain
WHAT WILL THE WINNERS LOOK LIKE?
Many of the ‘me too’ automated investment propositions will fall by the wayside unless they continue to develop
Automated investment propositions will need get much better at targeting clearly defined, profitable consumer segments
Differentiation needs to be on a feature that the mass market consumer can understand
A truly customer-centric approach will be required to shift customers from a transactional to an ongoing relationship
Winning propositions will make better use of behavioural economics to enhance the user experience and increase conversion and retention rates
Winning propositions will need to engage consumers in new ways, using visual stimulus to create emotional responses
Gamification can ‘reward’ consumers for building knowledge; virtual reality can allow them to test drive future outcomes in a safe environment
Winning solutions will blend the human touch with automation
Next generation ‘cyborgs’ will shift the boundary between human and robot within five years – think ‘virtual advice’
New revenue models to reflect what consumers are actually paying for?
Big data, data giants and analytics: The final frontier
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