While not everyone is yet happy to hand over the management of their wealth to computers, their ability to offer consistent, relevant advice will eventually win the day, writes Aggie Anthimidou, wealth management strategy at Temenos
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At the recent Temenos Community Forum in Barcelona robo advisers were a hot topic. They featured in the Innovation Jam, were the subject of standing-room only break-out sessions and were at the centre of reporters’ questions.
Clearly, many have grasped the role digitisation and data can play in improving the services banks offer to high net worth individuals – and for that matter to customers looking to invest even small sums.
Robo advice is when software offers advice or even manages assets on a discretionary basis, and it is playing an increasingly important role in wealth management services. Its attraction lies in the ability of algorithms to crunch far more data than a human to come up with consistent, relevant advice and produce personalised financial planning and asset allocation, and rebalance portfolios.
“From a service perspective, advice from a robo adviser is infinitely better,” says David Brear, digital banking adviser and commentator. “Humans are inconsistent and robo advisers enable a bank to offer the best service to all its customers.”
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By GlobalDataBrett King, digital banking specialist, author and commentator, agrees. “We are going to give more and more control to bots that act on our behalf. This includes advice. It won’t be long before we all realise that machines are much better at giving advice. It’s simply too big a challenge for humans to absorb and interpret all the data available and offer the right advice.”
While Brear and King clearly believe robo advisers are a step forward in wealth management some customers aren’t quite there yet. And the recent Forbes/Temenos insight survey “The Rise of Bionic Wealth” appears to back this up.
The survey found that wealth managers are ahead of their clients when it comes to understanding the value of digital and robo advisers and there was a significant swathe of clients – 21% – unaware of their very existence. But encouragingly, 30% of clients believe that they are “essential because technology is the best way to manage a portofolio”.
Without doubt, robo advice is a growth area. Citigroup predicts the value of assets managed by robo-advisers could reach $5tn over the next 10 years, driven by the younger generations who are more at home with technology. This compares with some $17bn managed by robo advisers in 2014, according to Corporate Insight, the research firm.
Established fintech players include Betterment, FutureAdvisor, Dragon Wealth and Wealthfront and traditional providers are also looking at how to incorporate robo advice into their strategies, be it by developing their own digital wealth management service or partnering with one of the established players. Fidelity last year teamed up with Betterment, while Charles Schwab has developed its own low-cost exchange traded fund-based service.
While fintechs are disrupting the market, established wealth managers have a real advantage, according to Pierre Bouquieaux, Temenos’ private wealth management product director.
“Wealth management has a real advantage over the fintechs: the relationship they already have with their customers and the amount of data they hold on them. It’s a highly valuable resource and digitisation will allow them to leverage this data and provide a better service,” says Bouquieaux.
But digitisation isn’t just about the data. People discuss investment choices with friends on social media channels such as Twitter and Facebook. These are becoming important sources of information for wealth managers and software providers are already looking at how to facilitate easy access to them. There are also plaftorms such as eToro that allow users to follow and copy thousands of top investors.
Dharmesh Mistry, product director of digital banking Temenos, says: “Platforms such as eToro help match risk requirements and asset preferences – call it Tinder for financial services. There have already been plenty of winners and there will be more, especially where the players adapt to local markets.”
But despite the success and growth of robo advisers, no one believes face-to-face asset advice is going to disappear. “The Rise of Bionic Wealth” found that 34% of clients believe that while robo advisers are good, “some human involvement is important in investing” and 62% said they still wanted to meet often their adviser.
There are also areas where human advice is always likely to be preferred – inheritance planning, retirement and tax being three obvious ones. And for some, there will always need to be considerable hand holding before they are comfortable with a computer managing their wealth.
What is certain that as the tech savvy generations take control of their inheritance and or make their own fortunes they will help drive the robo advice market forward. A robo adviser’s sheer ability to crunch the data to always offer the best advice will convert the doubters. At the end of the day it’s all about data management and in the words of Schoders’ Peter Thüring, chief operating officer at Schroders, the Zurich based wealth manager, “those who manage data property will win”.
