2,500% asset growth projected for robo-advice platforms

Led by major firms, assets under management forecast to reach $489B by 2020, Cerulli says

Nov 4, 2015 @ 12:39 pm

By Alessandra Malito

Robo-advice platforms are expected to reach $489 billion in assets under management by 2020, an eye-catching 2,500% increase from the $18.7 billion in AUM today, and that surge will be led by the major retail firms.

“The growth will be primarily driven by retail-direct firms entering that space, and also later on traditional advisers figuring out how to incorporate that spectrum of offerings,” said Tom O'Shea, associate director at Cerulli Associates Inc., which released a report called “Retail Direct Firms and Digital Advice Providers 2015” on Wednesday.

Mr. O'Shea said that for Cerulli, the term "digital advice" encompasses any type of robo-adviser platform, including start-ups, such as Betterment and Wealthfront, and major firms, such as Charles Schwab & Co. and Vanguard Group Inc. While the start-ups are quickly gaining traction in the industry — Betterment just passed $3 billion in AUM — Mr. O'Shea said growth will be driven by the latter firms, which have a far greater brand recognition in the industry.


Smaller robos will have to stay competitive by offering new services or targeting a wider audience, he said. Ultimately, all firms — and traditional advisers who want to stay in the business — will have robos, he added.

“We believe virtually all direct-to-consumer firms will have a digital advice offering in the next three years,” Mr. O'Shea said.

The study defined digital advice as approaches that use algorithms for asset allocation and employ passive management with the use of exchange-traded funds, including account aggregation and offering low or no-balance account minimums.

But just because these services are called robos doesn't mean they can't include a human element, Mr. O'Shea said.

“The word robo-adviser suggests humans aren't involved in the delivery of advice,” he said. “What we discovered is that's not true.”

Aside from the obvious traditional advisers who take control of their own robo-advisers, start-ups and firms have call centers and chat services to communicate with clients.

For those advisers who don't implement a robo in their firm or practice, these digital advice providers pose a threat. Robo-advisers can provide a benefit to traditional advisers, who can position the technology to cater to younger clients with fewer assets. If they do not, big firms with digital advice platforms, such as Fidelity, Schwab and Vanguard, will take over.

“That will be a huge area,” Mr. O'Shea said. “There is no big barrier to entering this market for those types of firms.”


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