The digital advice market will top $83 billion by the end of 2016, according to a November report by Cerulli Associates, with growth projected to reach $385 billion in the next five years. The report found assets controlled by investors interested in using those platforms will exceed $3.3 trillion. “This represents 14% of all assets in reasonably addressable wealth tiers, with an additional 17% as available for consideration in the future,” according to Cerulli.
Although the next half decade is a period of “significant growth” for robos, according to the report, there is “tremendous demand and opportunity” for traditional firms that can “enhance their digital offerings, strengthen their breadth of engagement and reinforce the value of personalized advice.”
Cerulli noted that over the past year, it’s become clear that digital advice platforms “are not the fundamental disruption that the traditional financial industry has been concerned about.”
“We believe that it is essential for traditional financial advice providers to view digital advice delivery not as a force that will displace them, but instead as a way to broaden their opportunity to deliver deeper levels of advice to a wider client base,” Scott Smith, director at Cerulli, said in a statement.
For example, the report found that as of the end of 2015, Gen X investors controlled more than $5.7 trillion in total investable assets in nearly 40 million households. That’s a sizable opportunity for firms whose competitors are “almost exclusively” targeting the much larger boomer and millennial generations.
To serve these investors, though, robos and traditional firms with digital advice platforms need to offer more services within the platform. A report released Thursday by Zurich-based research firm MyPrivateBanking (MPB) said robo-advisors are “at a tipping point” as “none of the platforms evaluated have yet developed the robo-advisory model of client recruitment to its full potential, with even the best current players leaving out at least one essential component.”
Although there were “plenty of examples of good practice” at the 30 leading global robos the firm examined, “no providers are yet coming close to offering an end-to-end consistent level of excellence,” according to MPB.
For example, MPB’s researchers found that robo-advisors “provided either good information about the product and process or good knowledge content but rarely both.”