Can Robo-Advisors and Human wealth managers coexist?

By Valuefy

December 21, 2018


Are human advisors being edged out by the Robo Advisory revolution? That is the question that’s troubling the wealth management industry moving into 2019. The future of wealth management seems to be in a state of flux, human advisors are apprehensive about the developments in Robo advisory, they aren’t sure whether Robo advisors are here to help them, supplement them or replace them entirely.

The answers aren’t clear at this point, however, Roboadvisory is forcing the industry to take notice and modernize to stay relevant. Roboadvisory is taking the wealth management space by storm, catering to millennials, these firms are mobile first, customer friendly, and transparent. They are a vast improvement on the opaque and inaccessible fashion in which traditional wealth management firms operate.

Millennial investors are curious about how their money is being invested, and Roboadvisory is helping them gain control and confidence over their finances. Investors are increasingly choosing Robo advisors as they are more accessible (Most platforms have web and mobile apps), more streamlined, and offer more value, especially to those with uncomplicated financial goals and needs.

What does this mean for traditional wealth management firms?

Traditional wealth management firms need to embrace the changes that are taking hold of the industry and adapt if they want to survive. Artificial Intelligence is helping temper the decision-making process, helping investors derisk their investment strategy in favour of a more holistic and data-driven approach. AI insights that are culled out from terabytes of data can help both professional advisors as well as laymen investors, make better decisions.

It may not be the solution for investors with complex needs and larger estates, but it can help those who cannot afford the high fees charged by traditional wealth management firms (around 1%-2% of AUM). Also, the low minimum asset requirements on Roboadvisory platforms (around $1000 – $10,000) as compared to high requirements of traditional firms ($100,000) make Robo platforms a lucrative option for beginners.

Robo-advisory in their current form is catering largely to DIY investors and supplementing traditional advisors, leading to a High Touch approach (Mix of tech and human advisory). Adaptable wealth management firms stand to benefit from this expansion of their customer universe, they can bolster their bottom line from being able to serve both small-scale investors as well as High Networth Individuals with complicated investment goals.

Integrating Roboadvisory into their roster of services is helping banks and wealth management firms free up valuable advisor time. Advisor portals and apps are helping clients gain more transparency on the state of their portfolios, in turn helping clients and human advisors have more insightful conversations about financial goals and strategies.

An ecosystem where Roboadvisory platforms and Human advisors coexist will inspire an ecosystem of trust and collaboration by reducing information asymmetry that plagues traditional investing. Investors across the board will benefit from being able to monitor and assess the state of their own finances in real time.

The human touch can never be eliminated as algorithms cannot assuage investor’s fears or offer solutions for complex needs such as succession/estate planning, elder care, tax and healthcare planning. However, technology can help automate and streamline a large portion of conventional financial planning, helping human advisors focus on complex, unique challenges posed by individual portfolios and leaving the humdrum of financial planning to Robo-advisors.

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