A report by Investment Trends, a retail investor research firm, found adoption of robo-advisor services is heavily concentrated in the United States, with less than 1% of respondents in the UK, Germany and France using a robo.
“The U.S. has this wonderful culture of ongoing technology innovation,” Michael Blomfield, CEO of Investment Trends, told ThinkAdvisor in an interview. It also has a very large market to support innovation, he said.
For example, Australia, where Blomfield is based, “doesn’t have the population to be able to invest in the startups in the way [U.S. firms] can to develop services and get to some level of critical mass in a time period that works for private equity and venture capital.”
Investment Trends estimates that 950,000 online share investors are already using robo-advisors, with almost half of those adopting a robo-advisor in the last 12 months. It estimates nearly 3 million people are interested in using a robo in the near future, with 530,000 who will likely engage a robo in the next year.
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These estimates are based on data from multiple sources and extrapolated to a survey of almost 9,000 online share traders, as well as 1,450 financial advisors, according to Investment Trends’ Research Director Recep Peker.
A May 2016 article in Money Observer estimated the U.K. robo-advice market accounted for about £140 million ($174.75 million), compared with $75 billion in the U.S. A consumer poll by London media company Boring Money last year found just 1% of U.K. adults used a robo-advisor, although 26% said they were interested in using one in the future.
U.S. firms like Betterment and Wealthfront have been “tilling the field for a long time,” Blomfield said. “They’ve been out there working hard, advertising, innovating, getting the product to a place that works for people. Into that very nicely tilled field walk the major establishment brands.”
That groundwork hasn’t been laid in Australia and the U.K., he said. “The general public is starting from a position of significantly less awareness of what robo is.”
Although interest in robos declines as users approach retirement, the report found, assets were heavily concentrated in accounts held by older, wealthier people.
“I’ve heard senior executives say, ‘This is just for young poor people,’” Blomfield said. “As the notion of alpha, even if consumers don’t use that word, […] has been pretty damaged, so the credibility of offering it is lower,” there’s been a big increase in the use of ETFs.