The digital advice market, or robo advice, is projected to become an even bigger industry, with $489 billion assets under management by 2020, according to new research, and will become a more important part of an advisor’s investment proposition.
The latest report from Boston-based Cerulli Associates said that large, retail direct firms are driving this growth and have captured “considerable market share.”
Services such as Wealthfront, Betterment and Vanguard’s Personal Advisor are leading the online advice trend in the U.S., while companies like Nutmeg and Swanest in the UK, vaamo in Germany, TrueWealth in Switzerland, MoneyFarm in Italy and Marie Quantier in France are introducing variations of low-cost and robo advice to Europe.
Large Retail Firms Joining In
Tom O’Shea, associate director at Cerulli, said robo advisors offer low-minimum and low-cost portfolios, and it coincides with expanding interest in passive investing.
“In addition, we anticipate that most, if not all, retail direct firms will have a digital advice offering within the next three years, and traditional advisors will also launch digital offerings for lower-balance investor accounts," he said.
There are many examples of registered investment advisors in the U.S. who are already offering digital services to lower-cost clients, as ETF.com reporter Cinthia Murphy found, proving robo advisors and traditional wealth planners are not such strange bedfellows as was once thought.
Passive Investment Gives Boost
Cerulli forecasts that the growth of robo advice will be boosted by the growth of passive investing. Silvan Schumacher, co-founder of UK-based robo advisor Swanest, wrote in a blog for ETF.com: “They [ETFs] offer a very smart investment strategy at a low cost, are extremely transparent and provide access to a universe of opportunities.”
Cerulli also warned that robo advice still needs to have an element of personal touch and human interaction. One example of this is wealth manager Nutmeg moving to offer financial advice.
Drago Indjic, portfolio manager at robo advisor ETFmatic, wrote in an ETF.com blog in October that ETFs can help lower costs—clients can buy in for as little as £50 per month [$75]—but still receive a personal service.
“At ETFmatic, we allow our clients to define highly granular investment strategies for each goal, including asset allocation, ongoing rebalancing and trade execution,” he said.