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ROBO-ADVISERS Moving on up
The rise of the robo-adviser is key to the opening up of wealth management to the mass market, finds Hannah Prevett
names crop up in the FinTech world. There was therefore a ripple of excitement when it was recently revealed that tennis champion Venus Williams had invested in Ellevest, an automated investment platform aimed at women. Williams’ interest in the company, which was founded in the US by Sallie Krawcheck, previously CFO at Citigroup and President of Global Wealth and Investment Management at Bank of America, is indicative of the rising prevalence of robo-advisers.
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John Barrass, Deputy Chief Executive of the Wealth Management Association (WMA), says these ventures have come a long way since they entered industry debate “about five or six years ago. They have risen in prominence since then as a central element in how firms plan for the future, how they address the changing tastes and needs of their clients, and how they invest in technology to meet new demands and develop new methods of delivery has been phenomenal.”
The revolution is being driven by the next generation of investors and those described as high earners, not rich yet (HENRYs), according to a recent report from Capgemini. Its research shows the market opportunity for robo-advisers is staggering: high net worth individuals alone are willing to allocate an estimated $7.3 trillion to automated advisors and the market is even greater ($16.6 trillion to $21.2 trillion) when mass affluent individuals are taken into account.
It’s been an evolution, says Paolo Sironi, a FinTech thought-leader at IBM investment and risk analytics and author of FinTech Innovation: from robo-advisers to goal based investing and gamification. “It’s not easy to do business-to-consumer because it’s so expensive to
t’s not very often that sporting megastars’
acquire new customers so they started transforming into business-to-business-to-consumer, therefore providing a solution to independent financial advisers, who could then advise clients,” he comments.
That’s not to say that some of the startups emerging in this space aren’t going straight for a slice of the consumer market. MoneyFarm, which launched directly into the direct-to-consumer space in Italy in 2011 where it now claims to have more than 60,000 registered users, entered the UK market earlier this year. Its USP is partly cost; MoneyFarm products are completely fee- and commission-free for the first £10,000 invested and for savings over £1 million. It’s also playing to its technology credentials: users can download an app and manage their investment portfolio from their iPhone.
It’s no surprise, therefore, that robo-advice is often thought to appeal to the Millennial generation, “which is accustomed to electronic social networks, mobile devices of various kinds, and the use of automated technology as a normal means of communication,” says Barrass. “For the next generation of investors, it is, to an extent, expected as the norm.”
Many, such as MoneyFarm, are also going after the “mass affluent,” explains Giovanni Dapra, the firm’s Co-founder and Chief Executive. “Our customers are generally between 35 and 50 years old, university educated with a house and kids. They generally have a good disposable income.”
MoneyFarm is in an increasingly crowded market and faces stiff competition from the likes of Betterment, which claims to be the largest independent robo-adviser “managing more than $5.7 billion in assets for more than
www.ibsintelligence.com © IBS Intelligence 2016
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