Why Amazon won't enter the advice market

New Cerulli report says the economics of the business — plus heavy regulation — make it unlikely that big tech firms will want to get into the advice market

Apr 4, 2018 @ 12:26 pm

By InvestmentNews

Despite what many see as the inevitability of tech giants entering the financial advice business, the economics of doing so — as well as the intensely regulated nature of the business — make their entry unlikely, according to a new report from Cerulli.

The Boston-based research firm says that "companies like Facebook, Amazon, Apple, Netflix and Google (FAANGs) have the tools and data to excel, but face significant obstacles that will likely preclude their entry,"

One major obstacle, Cerulli says, is the relatively small size of the market. The firm estimates that the "digital advice opportunity segment" represents only about 12% of investors, or a segment "that would be difficult to scale to be of strategic interest to the world's largest technology providers."

Cerulli noted that investors consider transparency to be the most important criterion in choosing an adviser. Since FAANGs' overriding fiduciary duty is maximizing shareholder value, building long-term trust in potential investor clients would be difficult, Cerulli said.

The ability to add "a scalable human advice element to digital platforms" also will dissuade large tech firms from entering the field, Cerulli says, because experience has shown that "even investors who thought they would prefer purely digital self-service relationships frequently want discussions with human advisers."

Recent reports that Amazon is in talks with large financial institutions including JP Morgan Chase to explore a new "checking-account-like product" spawned concern among advisers that the next step for tech giants would be financial advice.

"Advisers have their head in the sand; they are in denial," Ric Edelman, the founder and executive chairman of Edelman Financial Services, told InvestmentNews. "Many think [Amazon's likely move into banking] won't affect them or their clients. I think most advisers are wrong. There were probably a large number of buggy manufacturers that were saying the same thing in 1910."

This story includes material from a story previously published in InvestmentNews.

0
Comments

What do you think?

View comments

Recommended for you

Featured video

INTV

Ron Carson: If you aren't growing you're dying

There are two group of advisers, according to Ron Carson: Those that are expanding and those that are just "hanging on." So, which group do you belong to?

Latest news & opinion

What millionaires look for in an adviser

A list of factors that high-net-worth individuals will pay more for in regards to an adviser.

LPL rolls back recruiting policy aimed at driving more assets to its corporate RIA

LPL erases $50 million hurdle for new advisers to join so-called hybrid firms.

Don't be fooled by the numbers — the industry is in a dangerously vulnerable state

Last year's stock market gains helped advisers turn in solid growth in assets and revenue, but that growth could disappear in the next market downturn.

Divided we stand: How financial advisers view President Trump

InvestmentNews poll finds 49.2% approve of his performance, while 46.7% disapprove. How has that changed over the course of his presidency?

10 states with the most college student debt

Residents of these states have the most student debt when you consider their job opportunities.

X

Hi! Glad you're here and we hope you like all the great work we do here at InvestmentNews. But what we do is expensive and is funded in part by our sponsors. So won't you show our sponsors a little love by whitelisting investmentnews.com? It'll help us continue to serve you.

Yes, show me how to whitelist investmentnews.com

Ad blocker detected. Please whitelist us or give premium a try.

X

Subscribe and Save 60%

Premium Access
Print + Digital

Learn more
Subscribe to Print