While several automated, or ‘robo’, advice startups have recently called it quits, analysis from GlobalData suggests the fledgling industry can still offer competitive advantage to traditional wealth managers.

Following in the footsteps of WorthFM, SheCapital and Owners Advisory, New York-based robo advisor Hedgeable finally went out of business on 9 August 2018, just short of its 10-year anniversary.

Robo-advisors have struggled to attract enough clients with sufficient assets under management and high-net-worth investors are not flocking to transfer their assets to standalone challenger platforms.

GlobalData’s 2018 wealth manager survey found that just 10 per cent of private wealth managers feared they would lose market share to robo advisors over the next 12 months, with clients entrusting only small portfolios to the digital-only platforms.

ElleVest’s investors are giving it just $7,400 on average, while Hedgeable ended with $47,000 per account on average, despite marketing its offering to wealthy individuals.

Andrew Haslip, financial services analyst at GlobalData, pointed out that when a key selling point of the service is low cost, there has to be a mass market strategy attracting billions of assets.

“Robo-advice is a volume play, not a margin play, so the boutique specialist angle is not practical,” he commented. “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 survey found an enduring and growing demand for robo advice, with 40 per cent of private wealth managers noting strong demand for the technology from their clients; especially in the fast-growing Asia-Pacific region.

Haslip concluded that despite some drawbacks, robo advice is a competitive advantage that all traditional wealth managers must acquire.

“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,” he added.

Steve Andrews, head of managed services at adviser technology firm Focus Solutions, agreed that digital services are going to become an essential part of traditional wealth managers offerings.

"These services will range from full advice offerings, to supporting and enhancing the traditional services delivered to high-net-worth clients," he explained.

"How consumers access and purchase goods and services have significantly changed, so firms who embrace new enhanced services with the consumer at the centre will gain a competitive advantage. New digital technologies will also drive increased efficiencies across functions in the back office, administration, compliance, monitoring and reporting.”

Speaking to FStech for a feature last month, Manuela Rabener, chief marketing officer and UK co-founder at Scalable Capital, stated: “Incumbents are very actively monitoring the space and working on their digital propositions, but I'm sure we'll see some transactions in the market this year and in the years to come.”

Meanwhile, Lisa Caplan, head of financial advice at Nutmeg, commented: “We believe there is a role for independent online wealth managers that are truly offering a different service for customers, but it has to be more than offering traditional wealth management services through a website.

“We believe the future of wealth management is digital and there are no signs that investors or the industry are planning on taking steps backward,” she added.

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