Robo-advice emerged into the wealth space following the 2007–08 global financial crisis. Since then its popularity has grown from strength to strength in this traditionally paper-based industry. However, one question has always lingered with regards to its longevity: can robo-advice successfully navigate an economic downturn? The answer is yes.
Our 2020 Banking and Payments Survey found that robo-advice is increasing among all age groups. For example, in the US 7.2% of baby boomers used a robo-adviser in 2019; this figure has risen to 7.8% in 2020. On the other end of the age spectrum, in 2019 only 13.6% of Generation Z used robo-advisers, but 16.4% are users in 2020. Appetite for digital investment platforms is clearly on the rise.
The coronavirus pandemic has put the spotlight on all things digital, as lockdown measures have forced the world to significantly reduce face-to-face interactions. While tech companies like Amazon have soared, non-tech-friendly industries have suffered severe consequences. A similar story can be seen in the wealth space. Wealthfront has seen account openings rise 68% during the crisis, while from a returns perspective Wealthsimple’s mutual funds have outperformed traditional Canadian funds. Meanwhile, traditional players are seeing significant reductions in assets under management and are playing catch-up in terms of utilising technology to keep their business alive.
Although robo-advisers can benefit from being digital by nature at a time when human interaction is limited, that will not be enough. Market crashes demand high levels of communication between investors and advisers, as clients want to know their wealth is safe. Hybrid robo-advisers will reign supreme during this time, providing the perfect balance of digital and human interaction. This means purely automated robo-advisers should incorporate a human element into their proposition in order to encourage retention. Robo-advisers must also take learnings from this downturn and introduce financial planning products. Customers may be unemployed during this time and thus will need advice on how to manage their wealth.
Lockdown measures have accelerated the wealth management industry’s shift to digital, much to the benefit of robo-advice – a concept that respects social distancing by nature. Although we are yet to see the full damage of the current global downturn, if digital players can remain adaptive, keep in continuous communication with their clients, and protect their clients’ wealth, then they should be able to pass their biggest test.