The traditional wealth management industry has been upended by the launch of robo-advisor services — platforms that use algorithms to manage users' investment portfolios. These new technologies automate many of the processes involved in the wealth management industry and achieve similar or better returns on average compared with human advisors.
BI Intelligence forecasts that robo-advisors will manage around 10% of global assets under management (AUM) by 2020. This equates to around $8 trillion. It includes automated and hybrid robo-advisor services provided by startups and traditional wealth managers.
The structure of the existing wealth management industry will be important.
Global wealth is concentrated. The majority of global AUM is in the hands of a small share of the population. This means that only a few high-net-worth individuals (HNWIs) need to invest some of their wealth via robo-advisors to have a massive impact on AUM. We estimate that 60% of this segment will invest 20% of their assets in robo-advisors by 2020. That's about $6.4 trillion.
Asia will drive the adoption of robo-advisors. The Asia-Pacific region will overtake the US in terms of share of investable wealth globally by 2017. We estimate that the region will account for $2.4 trillion of AUM managed by robo-advisors by 2020.
Consumers are receptive to automated asset management. Consumers across all asset classes express interest in using robo-advisors. 49% of HNWIs globally would consider investing some of their wealth using automated advisors.
While robo-advising services make asset management accessible to those with more limited assets, most of the volume of assets will come from people who already have some investments. The volume of assets that will come from people who do not currently invest money will be less than 1% of the total by 2020.
Instead of being disrupted externally by robo-advising startups, large incumbent wealth managers are embracing the technology and launching their own products. Legacy players have a large amount of AUM that allows them to quickly scale their robo-advisor products. Vanguard began testing its Personal Advisor Services in 2013, and Charles Schwab launched its Intelligent Portfolios service in 2015.
Startups will find it difficult to scale and will need to differentiate their products to succeed. With much of the global investable wealth already in the hands of existing wealth managers, startups are beginning to offer their tech solutions as white-label products to incumbents. They are also creating more [...]