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January 8, 2021updated 26 Jan 2022 3:12pm

Robo-advice for sophisticated investors: We are not quite there yet

By GlobalData Financial

Demand from investors for automated or robo investment services has been on the rise globally. But to fully infiltrate the HNW space, greater sophistication is needed.

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How attractive are current investment opportunities in Europe?

Europe has been identified as one of the most favorable regions for investors, seeing high investment activity in the past year. Most of these investments have been through Debt Offering, valued at close to $700 billion. The region has provided attractive investments in a diverse set of companies. Companies who tend to major themes such Digital Media, Cloud, Artificial Intelligence, E-commerce, and Big Data are recording the highest number of deals, with Digital Media recording close to 2,000 deals. However, GlobalData’s whitepaper offers a full view of the market, analyzing less successful or attractive points of investment as well, examining statistics on Equity Offering investments and PE/VC deals. Understand how government agencies for economies around the world use GlobalData Explorer to:  
  • Track the M&A and Capital Raising volumes into their target market
  • Identify the top sectors in the target market attracting the investments
  • For any investment segment, identify the top Investors inside and outside the target economy that are already investing in the Segment
  • Assess and showcase the growth potential for various Industries in the target economy
Don’t miss out on key market insights that can help optimize your next investment – read the report now.
by GlobalData
Enter your details here to receive your free Report.

There is no question about it – automated investment services are revolutionising the investment landscape, and demand is no longer only limited to the retail space. 56% of wealth managers targeting HNW investors expect to lose market share to automated investment services in the next 12 months, while only 17% do not. However, to ensure customer stickiness and make real inroads into the HNW space, more than a couple of exchange-traded funds (ETFs) and portfolio rebalancing are needed.

GlobalData’s 2020 Global Wealth Managers Survey found that one fifth of HNW onshore assets are kept in execution-only accounts, and penetration of such accounts is likely to be almost universal across the investor base. While the sophistication of automated investment services is on the rise, they predominately rely on basic risk assessments to assign users to a portfolio consisting of a number of ETFs. The proportion assigned to each is then automatically rebalanced when securities change in value to bring a user’s portfolio back to a specified allocation.

This means investors are essentially paying for a more sophisticated digital interface and automatic rebalancing, given that access to ETFs through an old school online trading platform only requires a one-off fee in most instances, and that ETF annual expense ratios do not vary depending on the channel.

Admittedly, robo-advice fees tend to be low, with most providers charging a flat fee of 0.2% to 0.5% of assets under management. Yet in the absence of more sophisticated features, access to basic ETFs and automatic portfolio rebalancing are unlikely to convince HNW investors to channel substantial sums into an algorithm, when they can just as easily gain access via a trading platform.

Indeed, a desire to discuss investments with a human adviser and a belief that robo-advice technology is not sophisticated enough are the single most important deterrents to uptake in the HNW space as per our survey data.

We have already seen an increased focus on the human component in the robo-advice space. For example, Fidelity, Vanguard, and Personal Capital all offer hybrid services, leveraging technology while also providing access to a human advisor. However, to gain a solid foothold in the HNW space providers will have to up their game in terms of the features they offer. This could include tax loss harvesting and reporting functions as well as greater visualisation and investment access, including non-traditional products such as alternatives.

robo investors

Free Report
img

How attractive are current investment opportunities in Europe?

Europe has been identified as one of the most favorable regions for investors, seeing high investment activity in the past year. Most of these investments have been through Debt Offering, valued at close to $700 billion. The region has provided attractive investments in a diverse set of companies. Companies who tend to major themes such Digital Media, Cloud, Artificial Intelligence, E-commerce, and Big Data are recording the highest number of deals, with Digital Media recording close to 2,000 deals. However, GlobalData’s whitepaper offers a full view of the market, analyzing less successful or attractive points of investment as well, examining statistics on Equity Offering investments and PE/VC deals. Understand how government agencies for economies around the world use GlobalData Explorer to:  
  • Track the M&A and Capital Raising volumes into their target market
  • Identify the top sectors in the target market attracting the investments
  • For any investment segment, identify the top Investors inside and outside the target economy that are already investing in the Segment
  • Assess and showcase the growth potential for various Industries in the target economy
Don’t miss out on key market insights that can help optimize your next investment – read the report now.
by GlobalData
Enter your details here to receive your free Report.

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