Love it or hate it, online or so-called robo advice is here to stay. Over 8 months, assets have risen by 65% to $19 billion, according to a Deloitte Consulting report tracking 11 firms, including Vanguard and Schwab.
So what effect does robo advice have on the wealth management industry, and how should firms react?
Much of the growth has come from firms that have distribution, such as Vanguard, which has gathered $7 billion. Start-ups have struggled. Regardless, the report’s authors claim that robo advice will further disrupt the wealth management business due to:
- Lower fees opening up untapped markets.
- Younger investors wanting more control and “anywhere/anytime” access.
- Wealth management firms investing to create more personalized service.
- Existing firms incorporating robo advice with their current offerings.
- Lower tech barriers for new firms, including non-financial firms with access to large numbers of retail investors (see State Farm lawsuit).
What to do? Deloitte suggests either:
- partner (see Fidelity and Betterment);
- develop (see Vanguard and Schwab); or
- acquire (see Learnvest and Northwestern Mutual).
With state mandated auto IRAs on the horizon and the DOL’s proposed fiduciary rule potentially limiting investors’ access to advice and the need to reach low balance account participants, the retirement industry should be looking long and hard at how to incorporate some form of robo advice into their services.
Because, according to the Deloitte report, you ignore robo advice at your peril.
