Assets in robo-advice channel surge, as more RIAs prepare to jump in
Firms embracing automated advice are positioning themselves to capture new client segments. By 2018, nearly one-third of registered investment advisers will have a robo-offering.
The following is an excerpt from the InvestmentNews/BlackRock 2016 Elite RIA Study. It is the second iteration of a research initiative that seeks to identify the primary drivers of growth and success at the largest and most successful registered investment advisory firms. Click here to download the full study.
The rise of robo-advice platforms over the last year has been significant. Assets in the robo-channel have increased to $150 billion, a 61% increase during the 12-month period ending March 31, according to our research. We expect this rate of growth to maintain, if not accelerate, in the near term, as assets continue flowing to this still nascent model, particularly as more large financial services organizations and private-equity firms invest in robo-offerings and deliver them directly to the mass market.
Traditional financial advisory firms have been slow to embrace and adopt robo-technology, but our study found that a significant number of firms look to do so. Currently, just 8% of all firms in the 2016 Elite RIA Study offer a robo-platform. Among those that do not, 24% plan to do so within the next year or two.
At the same time, more advisers indicated they now see the emergence of robos as an opportunity — 48% vs. 39% — compared with our 2015 Elite RIA Study. We believe this shift is due largely to another realization: A growing portion of advisers, now having been exposed more directly to robo-offerings, do not believe robos offer a fundamental service that competes with their “human touch.”
- 2016 advisers’ views
- 2015 advisers’ views
What is motivating traditional advisory firms to offer a robo-platform? Among those who believe their firm could benefit from robo-advice, 78% say the No. 1 benefit is attracting new clients, and specifically new client segments (61%), such as younger clients. Sixty-four percent of those who already offer, or plan to offer, the service say the clients they want to target are those with assets below their firm’s current minimum.
Effectively, traditional advisers view robo-advice as an opportunity to change the composition of their client base, rather than their overall business model. The role of a robo, it seems, could be that of an incubator — a strategic tool to acquire younger clients and/or less-profitable client relationships, while delivering lower-touch services with significantly lower operational and support costs.
As these robo-accounts age and presumably grow, they should represent an opportunity for advisers to introduce more personalized — and ultimately more profitable — investment and wealth management services.
All advisers should consider how, or if, a robo-extension makes sense in light of their current strategy and markets served. Both the current and next generation of investors will expect advice or services and support from traditional advisers to be delivered across digital and mobile platforms.
As the technology has evolved, a number of providers — including technology companies, custodians, broker-dealers and asset managers — are now offering third-party robos that can be used by traditional advisers. We believe this will only serve to accelerate adoption rates by advisers and clients over the next two years, further embedding robo-platforms into the fabric of the financial advice model.
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