Digital Wealth Management and the
Emergence of the Robo Advisors
27 JANUARY 2015 | CFA Society Houston
William Trout – Senior Analyst, Wealth Management
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Opening Thoughts
“How did you go bankrupt?” Bill asked.
“Two ways,” Mike said. “Gradually, then suddenly.”
― Ernest Hemingway, The Sun Also Rises
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Section 1
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Digital Wealth Management and the
Emergence of the Robo Advisors
• Wealth Management Trends
• Automation of Advice
• Distribution Model
• Takeaways
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Wealth Management Trends
Disruption post-crisis
Fragmentation of Retail Delivery
NextGen Investors
From wire-house to discount
brokerage to independent
Generation X: Time
crunched, tech savvy
Technology: Ascendance of
self serve investing & robo
The Millennials: in USA
~ 80 MM “digital natives”
Shift to Passive Investing
Digitization
Shift to index funds
from active investing
Mobility/apps and
automation
Widespread adoption
of ETFs as next phase
of passive investing
Social: Community,
social media/trading,
crowdsourcing
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Wealth Management Trends
A fractured marketplace
National and International Banks
Automated Investment Advisors (Robo-advisor)
Online Brokerage
Full Service Brokerage
Independent Investment Advisors
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Wealth Management Trends
$20B of a $20T US market
Automated Investment Advisors
(Robo-advisors)
National and
Regional Banks and
Brokerages
Independent
Brokerages
Independent
Advisors
Source: Celent estimates
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Section 2
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Digital Wealth Management and the
Emergence of the Robo Advisors
• Wealth Management Trends
• Automation of Advice
• Distribution Model
• Takeaways
7
Automation of Advice
Public awareness
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Automation of Advice
Robo-advisor value proposition
No human advisor
Simple to understand
• Risk profiling, portfolio
construction, tax optimization
provided online
• Aims to take the fear and
complexity out of investing
• Customized asset allocation
based on questionnaire
Betterment
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• Simple 3 step process for
enrollment and portfolio
construction
Low price
• Cost for investing $100,000
– Charles Schwab: 0.00%
– Betterment: 0.15%
– Wealthfront: 0.25%
Wealthfront
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Automation of Advice
Hybrid Delivery
Third-party platform Personal
Capital offers live video feeds
between clients and advisors on
both its mobile and tablet solutions
via Facetime on Apple devices
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Co Browsing: Personal
Capital advisors use screen
sharing to add visual
support to their phone
conversations with clients
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Automation of Advice
Shifting attitudes across Wealth Management
“What is it?”
(2014)
“How do I use it?”
(2016)
“It’s a fad”
Automated onboarding
(and analytics)
“It’s something for
Millennials only”
Portfolio management
“Clients want a real life
advisor”
Reporting
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Automation of Advice
Market segmentation
Client segment
(by asset level)
Ultra HNW/
Family office
HNW
Wealth
Advisor/Planner
Financial
Advisor/Broker
Upper
affluent
The average advisor is 55 years old!
Online
Brokerage
Mass
Market/lower
affluent
Automated
advisor (Robo)
25
50
Underserved
Not tech savvy
75
Age
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Automation of Advice
Three assertions
1
The robo-advisor story is about delivery, not product
2
“What a human can do, an algorithm can do better”
3
“Automation” and “advisor” ≠ mutually exclusive
• Shift from inward looking channel views to a focus on new delivery mechanisms
• Algorithms can re-balance, test ideas, monitor risk efficiently & at lower cost
• From on-boarding on, automation is part of the “fabric” of the conversation
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Section 3
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Digital Wealth Management and the
Emergence of the Robo Advisors
• Wealth Management Trends
• Automation of Advice
• Distribution Model
• Takeaways
14
Distribution Model
Pivot towards B2B
4
B2C
(Consumer
driven)
2
Betterment and Motif launch
institutional offerings; Upside
Advisor purchase by
Envestnet; Betterment &
Fidelity tie up
Betterment, Wealthfront,
Personal Capital, Motif
Advisors start up
3
Nestwise (LPL) and
BloombergBlack
launch…and close
1
B2B
(Advisor
driven)
Launch of Folio
Institutional
Early
2000s
2007‒2009
(Financial Crisis)
2015
Time
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Distribution Model
The future or a blip on the screen?
October 2015
January 2016
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Distribution Model
Survey responses
How has your firm reacted to the emergence of robo-advisors?
80%
71%
60%
50%
40%
29%
20%
11%
0%
0%
Our firm is working Our firm is embracing Our firm views the
The emergence of
The emergence of
with our existing
the robo-advisor as a emergence of robo- robo-advisors has no
robo-advisors has
accelerated our firm’s clearing provider to complement to our advisors as a threat. impact on our future
build robo-advisor
existing service
advisor technology
focus on upgrading
functionality.
model.
investments.
advisors’ technology.
Source: Celent Survey of 28 financial institutions, Spring 2015
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Distribution Model
Traditional providers take notice
1
Business model change
2
Advisor tools
3
Distribution partnerships (B2B)
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Distribution Model
Digital tools for the advisor
Security enhancements
Multi-channel authentication, retinal
scanning, and voice recognition
technologies; Barclays already leading here
Secure document drop boxes
Living financial plan
eMoney Advisor offers an interface
where advisory clients can look at
snapshots of their plans anytime,
update their information, and run
what-if scenarios while conversing with
advisors – all aspects of “living
financial planning”
Co-browsing
Merrill Lynch, Citi, and
Northern Trust offer
secure document vaults
to better collaborate with
clients back and forth
Vendors like Livelook offer
customer service solutions for
screen sharing that advisors can
use to add visual support to their
phone conversations with clients
Workshops/seminars
Integration with tools like Cisco WebEx
provide the potential to offer digital
workshops for clients
Live video chats
Third-party platform Personal Capital
offers live video feeds between clients
and advisors on both its mobile and
tablet solutions via Facetime on
Apple devices
Source: Industry publications
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Wealth managers must find
a way to break traditional
trade-offs between
customization and scale
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Section 4
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Digital Wealth Management and the
Emergence of the Robo Advisors
• Wealth Management Trends
• Automation of Advice
• Distribution Model
• Takeaways
21
Takeaways
Analysis across three domains
Overview of trends
(1–2 = Low, 3 = Medium, 5 = High)
Financial planning
technology
5
Social media
4
Platform consolidation
3
Mobile tools
(tablet, smartphone)
CRM technology
2
1
0
Onboarding technology
Self-directed tools
Hybrid
delivery
Artificial intelligence
Automated
advice (robo)
Disruptive Potential
Digital strategies
(firm wide)
Maturity of Technology
Widespread Adoption
Source: Celent
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Takeaways
Stakes are rising
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Takeaways
The robo story is only beginning
1
Robo-advisors will slowly move upmarket. To combat them,
traditional firms will build more “robo” into the advisor tool-kit
2
Discount brokerages, caught between the robos and
advisors, need to improve their offer … or lose market share
3
Despite competitive pressures , B2C (direct to consumer)
robos offer potential for the greatest disruption long-term
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Takeaways
The B2C “Super-Robo”
• More asset classes, including
alternatives (e.g. bitcoin, private
shares) & active investing
• Deeper advice (e.g. financial
planning, wealth transfer)
• Unified Managed Account
(UMA) functionality, addressing
concentrated stock positions
and social preferences (e.g.
tobacco or gambling stocks)
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Consider the shift from
traditional, advisor-led
models to technologybased models of investing.
Entry barriers for
innovative start-ups have
never been lower. How will
your firm respond?
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Thank You!
William Trout
Senior Analyst
Wealth Management
[email protected]
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