How the swelling robo-advice market could become profitable and move into the mainstream

By Daniel Lanyon on Tuesday 31 January 2017

Alternative LendingSavings and Investment

A new report from Verdict Financial argues for low cost, automated, online wealth management to move into the money-making stage it will have to take market share from traditional financial intermediaries. 

High profile robo-advisors should tap the market for the capital necessary to buy the client books of retiring financial advisors, whose generally affluent older customers tend not to have considered a robo-advisor, according to financial services research and insight firm Verdict Financial.

The firm’s latest report suggests key wealth markets are set to experience a surge of new business models and further industry consolidation. One of the more optimistic predictions for the future involves the aging, predominantly baby boomer advisor base in places such as Australia, Canada, the UK and the US.

Robo-advisors are online wealth management services that provide automated, algorithm-based portfolio management without the need for human financial planners.  With many offering largely exchange-traded fund (ETF)-based portfolios, their hallmark often lower fees than actively managed portfolios.

Robo-advisors are indeed one of the hottest fintech trends in wealth management at present dozens launched around the world, however few have reached profitability in the scramble for market share.

Andrew Haslip, Verdict Financial’s head of Content for Asia-Pacific, says robo-advisors’ ‘rock-bottom’ fee structures, only break even with pools of client assets well above industry averages, something even the most successful companies such as Bettermint and Wealthfront in the US, will struggle to achieve in 2017.

 “Inflows to robo-advisors, while positive, have slowed and smaller robo-advisors or those in smaller markets such as Australia will remain well below the necessary volume based on current trends. For robo-advisors looking to scale up their client assets quickly, the wave of retiring advisors, along with the current low cost of capital, offers a once-in-a-lifetime opportunity, provided they pay for it,” he said.

 “The clients will benefit from cheaper ETF-based portfolios, while robo-advisors boost their client assets. So keep your eye out for the wealth industry’s newest trend, the robo-consolidator,” he added.  

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