The market for robo-advice is poised to explode, according to a new Deloitte forecast.
The consultancy predicts robo-advice could grow to be a $5 trillion to $7 trillion segment by 2025 in the United States, representing 10% to 15% of U.S. retail assets under management.
And Deloitte says this estimation could be conservative.
This is massive compared to today. Deloitte’s research shows that robo-advice now accounts for less than $100 billion of the $32 trillion U.S. retail assets under management.
Deloitte predicts that in 2025 there will be $51 trillion retail AUM in the U.S., and 10%-14% of that will belong to robo-advice.
Deloitte comes at this estimation through two different routes.
Because robo-advice has a special appeal to a new generation of investors, including Generations X and Y, Deloitte looked at these two generations.
According to its research, Gen X and Gen Y will account for one-third of all U.S. retail assets under management within 10 years.
“If you assume 20% to 30% penetration rates for robo-advice, you get to $5 to $7 trillion,” the report concludes.
Next, Deloitte looked at it another way, in wealth tiers.
“We believe that robo-advice will appeal to mass affluent retail investors (with assets between $100,000 and $800,000), as well as mass-market retail investors with assets less than $100,000 who cannot afford the services of a traditional advisor,” the report says. “Many affluent investors may also want to invest a slice of their portfolio in robo-advice.”
Conservative assumptions in terms of robo penetration rates across these wealth segments brought Deloitte to the same estimation.
Deloitte also predicts exponential growth in the robo-advice segment based on its study of disruptive innovation, in collaboration with Singularity University, across multiple industries.
Today, robo-advice is barely advice, as Gauthier Vincent, Deloitte’s U.S. wealth management leader, a principal with Deloitte Consulting LLP and an author of the report, writes in the introduction.
Right now robo-advice is “limited to portfolio allocation and some investment recommendations,” Vincent writes in the report.
“Our prediction: In the future, we will have robo-advice on steroids — broader, more holistic advice powered by advanced analytics,” Vincent writes in the report. “Just think of the implications, as it could lead to a new world where tech companies own customers and deliver robo-advice (owning the front office functions), while traditional wealth management firms execute the trades (owning the middle- and back-office functions).”
The report anticipates advanced analytics being an “exponential” catalyst in all this.
Deloitte imagines the effect advanced analytics will have on robo-advice – from predictive analytics that establishes data-driven guidance for decisions in the midst of uncertainty, to algorithmic analytics that track digital activity and adjust responses in real time, and cognitive analytics that mimic the human brain through self-learning systems and use data mining, pattern recognition and natural language processing.
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