The future of wealth management is digital. Robo-advisors can help drive digital transformation in asset management and sharpen the understanding of man-machine interaction. Whether success lies in hybrid solutions is questionable.
In terms of cost efficiency, wealth management is, in principle, a non-scalable business model. Robo-advisors have been tackling this structural problem for some time.
These digital investment platforms offer automated investment recommendations, mostly passive index funds, and the autonomous execution of investment decisions. They are operated by established asset management institutions and startups alike.
What all robo-advisors have in common is the goal of scaling asset management, opening up new, previously less attractive client segments and offering clients transparency on costs and performance.
Riding the digital wave
The downside of this transparency is the volume and margin pressure on asset managers. They face a strategic dilemma between offline and online distribution channels.
The hybrid route is seen as a way out of this dilemma.
The history of the automotive industry is a good analogy, it uses hybrid drives to meet society’s demand for environmental compatibility while at the same time attempting to slow down technological progress towards pure electric drives.
The asset management industry is also trying to establish intermediate or multiple solutions by positioning the robo-advisor as a favorable channel alongside physical consulting.
The segmentation into high-margin and low-margin businesses and client groups also needs to be maintained, changes in client behavior is to be controlled and ultimately change in the industry is to be halted or at least delayed.
However, this hybrid approach fails to recognize that robo-advisory platforms do not constitute a real business model.
They are a manifestation of the digital transformation towards man-machine communication. Robo-advisors show the primacy of scalable technology and should rather be used as an incentive for a de-segmentation in asset management, where there are no unattractive clients.
The current “combustion engine” of wealth management personal consultation services will continue to be preserved as a competitive advantage and distinguishing feature. In reality, the value of advisory services provided by people in wealth management is probably overestimated.
In the future, confidence in technology will grow exponentially and the pace of this change will overstretch many market players.
The machine in the center
There are market observers who see robo-advisors as a critical path into the future of wealth management. It is more likely that they will remain a sign of the times, but will nevertheless help technology along the value chain to make a breakthrough.
The financial industry has long been using software to support investment advice and optimize portfolio diversification.
However, the human consultant was and continues to be the focal point.
This is where the great change in asset management will manifest itself: in the future, the machine will be the focus of attention.
Cognitive computing and big data enable an educational, interactive, contextual and iterative engagement between man and machine. Personal consultation with a human wealth manager will be an exception and viewed as a supplementary service, offered as a “service on demand” subject to a fee.
The future belongs to the e-Asset Manager.
