Robo-advisors are the most visible fintechs driving innovation and disruption in investing and financial planning. These new entrants have faced an uphill battle to acquire customers, with many start-ups pivoting to serve incumbents or being acquired.
Incumbent financial institutions have been fast-followers, launching successful robo-advisor services that have captured most of the assets under management (AUM) in the robo segment.
The wealth management industry manages $100 trillion in investments with 3 distinct activities: financial planning, investing, and operations.
Digital wealth management uses technology to automate and improve the customer experience, while generating fees and commissions from asset acquisition, portfolio management, and automation of back-office operations.
Many successful fintechs in wealth management are working behind the scenes to partner with incumbents and provide business-to-business (B2B) products and services.
The future of digital wealth management is a hybrid model of a human advisor supported by computer algorithms that automate boring tasks and improve the customer experience.
Spoiler Alert: Goliath Beats David
Robo-advisors have captured the attention of both the media and the public with catchy advertising, innovative designs, and their low-cost approach to investing. These fintechs offer automated online investment portals that use computer algorithms to provide customized portfolio recommendations to individual investors. Robo-advisors first emerged in 2008 and gained popularity as a low-cost and simple alternative for investors unwilling to pay for the services of an investment advisor or do-it-yourselfers.
Everyone loves a David versus Goliath story with an entrepreneurial start-up defeating a larger incumbent. Unfortunately it didn’t work out as planned; Goliath won.
The following quote from the industry newsletter, Backend Benchmarking, summarizes the state of the robo-advisor industry: “In the end, robo advice is a story of adoption at major firms, not one of disruption by independent start-ups.”
Read more in Ch.8 of https://utorontopress.com/9781487544089/fintech-explained/