The Expansion of Robo-Advisory in Wealth Management the Takeover of the Robots in the Classic Field of Wealth Management Is an Emerging Trend Across the Industry
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The expansion of Robo-Advisory in Wealth Management The takeover of the robots in the classic field of Wealth Management is an emerging trend across the industry. Is this the yet missing revolution to meet client expectations in a digitalizing banking environment? We provide a closer look at the German Robo-Advisory market. Understanding Robo-Advisory trillion in assets to be managed with related hot topics publications providing Google search queries for “Robo-Advisor” the support of Robo-Advisory services useful industry insights. Robo-Advisory is yield 423.000 results and there are close in 2020. By the year 2025 this figure is our initial key topic experiencing highest to 100 Robo-Advisors in 15 countries as expected to rise to over $ 16.0 trillion relevance in terms of predicting the future of today. And while all of them make wide assets under management (AuM), Wealth- and Investment Management use of the term, the offerings themselves roughly three times the amount of assets market. The series will continue with a vary significantly. managed by BlackRock, the world’s biggest comprehensive view of the Robo-Advisory asset manager to date. landscape across Europe, the UK and Estimates for the future Robo-Advisory the USA, providing insights into single market by several well-known institutes This abstract is the start of a series of business models and their chances of predict between $ 2.2 trillion and $ 3.7 Wealth- and Investment Management- success. We will address aspects such The expansion of Robo-Advisory in Wealth Management as general profitability, cost of acquisi- Robo-Advisors translate client input into Robo-Advisor 2.0 tion, and potential opportunities for investment logic such as risk appetite or Investment portfolios are created as established players as well as individual liquidity factors and propose adequate a fund of funds, and setting up invest- nuances of the German and European investment opportunities well beyond ment accounts as well as direct order market compared to the more mature US simply highlighting a handful of ETFs out execution is part of the service. The asset Robo-Advisory market. of a few thousands of possibilities. The allocation is managed on a manual basis majority of Robo-Advisors aim to allocate by dedicated investment managers. This report contains a detailed look at the their clients to managed ETF-portfolios Questionnaires are not only used to filter Robo-Advisory capabilities in the German based on individual preferences. suitable products but to allocate clients market, enriched with insights from more to a handful of pre-defined risk-allocated developed markets such as the USA and Comparing current Robo-Advisors in the portfolios. Real investment managers take the UK, as early movers there are expand- market a four step evolution of features care of investing and adjusting client port- ing their territory into the German market and services can be outlined. folios. The realization is semi-automatic as already. In a data-driven assessment, the investment managers oversee the invest- report examines the characteristics and Robo-Advisor 1.0 ment algorithm and define rule sets. features of the overall offering of modern Clients receive single-product proposals Robo-Advisors. Our research was carried or portfolio allocations based on listed Robo-Advisor 3.0 out on a total of 74 Robo-Advisors world- investment products after answering a Investment decisions and portfolio rebal- wide: 29 in German-speaking countries, questionnaire to filter suitable options. ancing proposals are based on algorithms 25 in the USA, 15 in the UK, and 5 in other Most firms operate via web-service or which monitor and satisfy pre-defined regions. smartphone app. There is no bank- or bro- investment strategies. ker-API managing the execution. Clients We will start with a general understanding have to buy and manage a real product- Final oversight is provided by professional of the term “Robo-Advisor”, describe the based portfolio on their own by using their fund managers. Some services enable ongoing evolution and highlight selected own accounts, and also manage future their clients to follow or neglect proposed key players in the market for automated adjustments. Product variety includes portfolio adjustment decisions in order to investment advisory services. On top of stocks, bonds, ETFs, and other investment individualize their portfolios. that, current and upcoming Robo-Advisory vehicles. challenges are considered in our 5-years industry outlook. Robo-Advisory evoltion igital Wealth Management from to First things first, let’s start with a concrete definition of the term “Robo-Advisor”. The 1.0 2.0 3.0 4.0 word consists of two parts: “Robo” (for robotics) and “Advisor”. Robo stands for an automated process without the influ- ence of a human being, utilizing math- ematical algorithms to support investment decisions. “Advisor” stands for Wealth Management services, in this case in an • Online automated manner, making use of regular questionnaire online or mobile channels. Putting these • Product or port- • Dedicated fund terms together we are talking about an folio proposal management • Algorithm based online portfolio management solution that • Listed ETFs, bonds, • Managed adjustments & aims to invest client assets by automating shares adjustments & rebalancing client advisory. Encouraging self-manage- rebalancing • Fully-automated proposals investments ment of financials, Robo-Advisors provide • Funds of funds & • Pre-dened necessary information in a totally different portfolio view • Self-learning investment algorithms way that doesn’t require a deep financial • Risk-based rule-sets • Automatic asset background. portfolio- allocation shifts 2 The expansion of Robo-Advisory in Wealth Management Robo-Advisor 4.0 classification. Since Ginmon not only offers up a broad client base: they promise easy Sophisticated risk management and portfolios as “paper-based” investment investment success even when there is profiling questionnaires lead to direct proposals, but also provides capabilities limited financial background knowledge, investments via self-learning artificial for creating and managing investment time, or intention to deal with the selec- intelligence (AI) investment algorithms. accounts and order execution, realized tion of individual investment vehicles. They shift between different asset classes by partnering with direct online brokers Clients thus transfer the responsibility of based on changing market conditions DAB bank and Consors Bank. Ginmon´s asset allocation and single investments to and individual investment needs such as approach is rather holistic when it comes an algorithm, the robo-component of the profit, risk appetite, and liquidity aspects, to providing a full service package and all- advisory service. However, there are no monitor and adjust single client portfolios in-one customer experience. mid- or long-term investment results yet in real time to keep on track with their for those solutions which combine ETFs selected investment strategy. Robofolio comes close by providing into a synthetic product mix tailor-made to services that would describe a next step in the client’s risk appetite. Based on previous evolution of Robo- Robo-Advisory. Whereas a “Robo-Advisor Advisors it can be outlined that as of today 2.0” offers a one stop shop solution for Even if some market participants have about 80% of German, EU, UK and US client needs with regard to the invest- been praising themselves for superior Robo-Advisors have 3.0 capabilities with ment strategy and moreover provides the investment performances in the past (e.g. an increasing trend to automation and depot and brokerage, the “Robo-Advisor during a political shake-up) it remains to service offerings. It has to be mentioned 3.0” services go beyond that approach. be proved that the robo is indeed the that especially the Robo-Advisor 3.0 capa- Robofolio’s added value is an algorithm better advisor in the long run. bility includes a wide range of technology that recognizes and anticipates changes from lower to higher end depending on in market conditions and hence is capable Coming back to the two essentials for the Robo-Advisor’s chosen strategy. Some of automatically proposing shifts in client long-term success, trust and a broad client offerings prefer a fixed investment strategy investment accounts such as the UK’s fast- base, there seem to be ways of winning built on specific investment theory KPI’s, growing Robo-Advisor Wealthify, which in a large number of new clients in a short others choose to include market move- addition gives individual investment-shift time and to accelerate hyper growth, using ments and trends in their automated proposals as a push service to its clients. gamification features or a very simple portfolio rebalancing proposals. user front-end such as CFD broker Bux. Self-learning artificial intelligence (AI) However it is only possible to earn sus- Hybrid-Robo-Advice is the most algorithms are describing Robo- Advisors tainable trust in the long-term, and that common model where investment of the 4th generation, which seem to be at means delivering extraordinary results managers utilize digital services for the ready. Novofina may prove to be one or winning strong partners who leverage portfolio-rebalancing or asset allocation to of these next level Robo-Advisors provid- the still missing trust by sharing their own optimize their quality of advisory services ing algorithm-based Wealth Management