Opportunities for wealth management are growing among consumers with lower and moderate incomes – as well as millennials – by increasing use of robo-advisor technology, according to a recent study.
Juniper Research says that with new opportunities for automation, fintech firms are also “moving in to disrupt the market.”
The changing environment comes as robo-advisor platform revenue is projected to total $25 billion by 2022, compared to an estimated $1.7 billion in 2017, Juniper said.
With these growth opportunities, robo-advisors are making wealth management “more open and inclusive,” Nick Maynard, a research analyst at Juniper Research, told ThinkAdvisor. “Robo-advisors are actively broadening the appeal of wealth management.”
Total assets under management by robo-advisors will jump to $4.1 trillion in 2022, from an estimated $330 billion in 2017, the study adds.
“By automating services, costs are reduced and fees are reduced, so the barriers to entry are much lower,” Maynard explained.
He also points out that smartphone apps lower the barriers to entry, too, and they make investments easier and more convenient, especially for millennials.
Maynard doubts the growing automation will completely replace the traditional role of financial advisors. “Particularly for HNWIs [high net worth individuals], investment is something that is built upon trust and a long track record,” Maynard said. “Part of investing large sums of money is building up relationships with trusted advisors.”
As a result, financial advisory firms will “need to emphasize their credentials and experience” and will need to present themselves “as a trusted expert,” Maynard said.
Moreover, Howard Yu, a management professor at IMD, predicts the image of some financial advisory firms may change. “In the past, all financial advisory [firms] looked very similar. They all projected a sense of security and stability. They looked, by and large, traditional. But if robo-advisors’ target audience turns out to be the millennials and the underserved, the communication style of these service providers will naturally project a very different image, much more upbeat, fun, and contemporary.”
He cites the earlier example of what took place in the airline industry, as Southwest became an industry “disruptor” in the late 1970s.
In addition, larger wealth managers can use robo-advisor tech themselves, Maynard says. “By offering a branded app, these firms can combine their brand name and reputation with competitive fee structures.”