A study conducted by financial industry research firm Corporate Insight indicates that automated investment platforms saw a 57% increase in assets under management between December 2014 and July 2015.
On the surface this news could lead one to believe that digitized wealth management tools and robo-advisors are poised to render traditional advisors obsolete. But as veteran investors in the financial services sector we have seen this sort of hysteria for new tech before.
We do not believe that robo-advisors will put traditional wealth advisors out of business, especially given that more than 99% of retail assets remain in traditional channels. We think the status quo can benefit significantly from the digital technology disruption. In the near term, we don’t see technology replacing people. Instead, the role the wealth manager plays will evolve.
It is absolutely true that digital technologies are currently disrupting the traditional value propositions of wealth managers while also broadening the market by attracting lower net worth investors. Many new technology-based entrants offer a highly compelling value proposition that should cause traditional participants to take note. After decades of serving clients through tried-and-true methods like phone calls, e-mail updates, and in-person planning meetings, many advisors are now facing the expectation and seeing the value of a 24/7 digital view of accounts and analysis.
In a recent Cap Gemini Survey, 64% of affluent individuals, including high net worth investors, expect their future wealth management relationship to be digital. In the same study, 82% of affluent individuals under the age of 40 expect digital wealth management interactions. Finally, 65% of affluent individuals polled said they will leave their wealth management firm if it doesn’t provide a digital portal alongside traditional service conduits like in-person meetings, phone calls, etc.
These percentages will likely rise as more millennials enter the marketplace. Often called “digital natives,” these future clients have lived their entire financial lives online and via mobile apps. Why would they expect a different reality from their wealth advisor?
Indeed, these trends have some managers scrambling to evolve their service offerings to meet these needs. Challenges include issues with legacy systems, disparate technologies and siloed data. As a result, many advisors are rethinking their businesses and technology requirements.
In fact, we see a bigger opportunity for digital platforms that work in collaboration with advisors to deliver a multi-faceted offering. Even Financial Engines, one of the most successful robo-advisors in the marketplace (and a former portfolio company of ours), recently made its human investment advisors more available to customers.
Similarly, platforms that can help wealth advisors retain and grow their client bases, rather than trying to put them out of business, have the potential to transform the industry for the benefit of all players. We recently invested in True Potential LLP, a UK-based company that has implemented this hybrid approach. Following this theme, below are five strategic needs that digital platforms can help traditional advisors meet through purchase or partnerships.
Need for Client-Centric Technology: Clients have come to expect interfaces that look “cool” and travel across their devices while remaining intuitive and easy to use. Emerging platforms can deliver this experience in a way users can customize for themselves – whether they merely want to check account balances or take on larger life tasks like retirement planning or initiating a trust fund.
Improved Workflow and Automation: Clients want more information and more communication across more conduits. From traditional distribution of quarterly reports to cutting-edge CRM tools, a strong platform should let advisors meet this demand through automated tools. Ditto for internal reporting, business management functions, etc. This frees up time and resources to service clients that still prefer a hands-on approach and to solicit new business.
Digitalized Client Onboarding: Adding this capability benefits clients and employees alike by getting clients up and running quickly and efficiently. Fewer hoops means happier users – from front to back.
Meet Evolving Compliance Requirements: In the wake of two financial scandals since the dawn of the new millennium, the financial sector has become one of the most regulated spaces in the economy. Emerging digital platforms offer components that can assist managers in complying with all relevant regulations and best practices.
Fending Off Increased Competition: The reality is that digital tools have already become table stakes for advisors who not only want to fight attrition but grow. A proven, scalable platform can transform an advisor’s offering rapidly and cost-effectively.
By leveraging the advantages above, traditional advisors and managers can actually strengthen and expand their hands in a market that continues to grow. It’s an outcome that will make more money than headlines. We’re pretty sure that will remain the point – disruption or not.