Has the wealth management industry hit peak robo? That's the question being asked by Global Data following the restructuring of Hedgeable, the first actively managed robo-advisor, just short of it's tenth anniversary.
Hedgeable follows in the footsteps of WorthFM, SheCapital and Owners Advisory, in withdrawing from an increasingly crowded market, which is finding its difficult to lure high net worth investors away from the clutches of top tier banks and high-touch advisory boutiques.
GlobalData’s 2018 survey of wealth managers found that just 10% of private wealth managers feared they would lose market share to robo-advisors over the next 12 months, a big turnaround from the hype-fuelled advance of the robots over previous years.
Those HNWs who do place their faith in robo-advisors appear to be handing over only a small portion of their wealth to the digital-only platforms. EelleVest, the female-focused service launched to great fanfare by former Bank of America and Citi executive Sallie Krawcheck in 2016, currently looks after just $7.400 per client on average. Hedgeable ended with $47,000 per account on average, despite marketing specifically to the HNW category.
Either platforms’ users are not HNW individuals, or they are not comfortable handing over the bulk of their assets to be managed by an algorithm, says Andrew Haslip, financial services analyst at GlobalData.
“When a key selling point of the service is its low costs, you have to have a mass market strategy. In other words, in order for any robo-advisor to be successful, it must be attracting AUM in the billions of dollars," he says. “Robo-advice is a volume play, not a margin play, so the boutique specialist angle is not practical. Wealthfront, Betterment and a few other major brands such as Acorns are strong enough and broad enough to attract enough clients. Start-ups with little brand awareness and targeted addressable markets are not.”
However, the Global Data survey did find an enduring and growing demand for robo-advice, with 40% of private wealth managers noting strong demand for the technology from their clients, more in the fast-growing Asia-Pacific region.
Investors are increasingly looking at it as a tool that every wealth manager should be deploying on their behalf, says Haslip.
“Despite some drawbacks robo-advice is a competitive advantage that all traditional wealth managers must acquire," he says. "They are not about to lose their best HNW clients to a start-up robo-advisor, no matter how slick the digital interface. But they might just lose out to a competitor that has adopted the technology and integrated it into its overall private wealth management proposition. Although ultimately the human element will remain prominent in the world of financial advice, the industry will continue its technological advancement.”