The early demise of the Robo breeds digital advice era
The tone of conversations between institutional investors and wealth managers in the United States has changed in recent past, considerably.
There is an undeniable seismic shift away from what the industry expected the robo adviser to be.
The influx of Funds Under Advice (FUA) that was expected by the VC Seed investors from Silicon Valley just hasn’t happened. And when you’ve got a value proposition based on low costs, no volume equals no capacity for business growth, not to mention a few tricky conversations with seed investors waiting for their return on capital.
Back to the drawing board it is then.
The various FinTech providers have gone into the trenches, looked in the mirror and have (as of late 2015) raised their heads back in the marketplace, albeit with a different hat on.
Rather than the traditional B2C model which we have all become very familiar with, the Wealfront and Betterment’s of the world (Stockspot here at home) – there is a shift in positioning away from retail simply because of how much it costs to create awareness of a retail brand.
The new hat is that of a B2B white labelled offering, and there is a renewed excitement for developments 2016 will bring.
During a recent #IPinUSA15 study tour in Boston and New York, I was presented with the Pershing backed Marstone platform. Marstone is an example of a white labelled robo investment manager. What this means is that advisers can use this servce to provide a low touch scaled offering for their younger clients.
With this offering, advisers have a way of nuturing a pool of young prospects in a scaled way. Proviing these clients with helpful information and improved financial literacy content will keep the adviser front of mind when the need for more comprehensive advice manifests.
With over USD$30 trillion being handed down to the millennials and Gen Y over the coming decades, a B2B scaled advice model is music to the ears of these financial advisers desperate to find a way to speak to their clients’ children, and the younger generation more broadly.
The robo-adviser offering is good at solving half of the equation. It provides the client with a way of increasing their financial literacy in a gamified way, and solves a relatively modest investment need for a modest cost.
It is remarkable how efficient many of these robos are at humanising their interface engagement with clients, and they are leading the charge on objectives based reporting. Watch this space!
However, the model fails with the underlying assumption that Generation Y is comfortable with putting all of their eggs in the robo basket. As the needs and implications of financial decisions become increasingly more complicated, the robo just doesn’t cut the mustard.
The landscape has shifted from robo advice to digital advice.
The wealth managers in the United States who get it have been keenly waiting for a Marstone style of offering to come to market with a platform that will integrate into their existing service. With a fully integrated digital offering, the wealth managers will have an internal referral source to engage with the clients who are in this space and put themselves in the front of the queue for when the more comprehensive advice needs present themselves.
The demise of the robo adviser breeds a digital advice era which will be a pivot point for the advisers here in Australia who embrace the service. We need only to look over the pond and observe how the landscape is shifting in the States.
By Ray Jaramis, Treysta Financial Life Management