After the strong growth of the robo advisory approach in recent years, promoted by numerous start-ups worldwide as well as sizeable number of early adopting wealth managers, a new ‘sub-species’ has emerged: the hybrid robo/personal contact service, which adds a substantial software component to human interaction in the client advisory process.
This is a key finding of MyPrivateBanking’s latest report “Hybrid Robos: how combining human and automated wealth advice delivers superior results and gains market share“.
Robo Advisors vs. Human Financial Advisors
Robo-advisors have begun to distinguish themselves into three models, but they each have the same goal. Standalone companies such as Betterment (the most popular U.S. robo-advisor) use algorithms to recommend stocks and manage portfolios. Hybrid robo-advisors combine computerized recommendations with on-demand advice from a human being. And advanced standalone companies leverage more complex algorithms to create and actively manage portfolios.
Robo Advisors for Advisors
In MyPrivateBanking’s view, hybrid robo advisory strategies represent a paradigm shift in the pace and path of change in the wealth management industry. MyPrivateBanking estimates that hybrid robo services will by 2020 grow to a size of USD 3,700 billion assets worldwide; by 2025 the total market size will further increase to USD 16,300 billion. This number constitutes just over 10% of the total investable wealth in 2025.
By comparison,“pure” robo advisors (completely automated without personal service added on) will have a market share of 1.6% of the total global wealth at that stage. The report includes a projection for the market size and growth globally of Hybrid Robo Advisor and pure play robo advisor, including a breakdown between North America and the rest of the world, and a split by the retail and affluent wealth and the HNWI/UHNWI segments.
Hybrid robo solutions are a dynamic and also unstable new phase in the wealth management industry’s transformation. MyPrivateBanking expects 2016 to be a year of significant developments – several major players have announced that they will reveal their hybrid offerings in the course of the year and many more wealth managers are currently working through the issues of hybrid robo adoption. The institutional players entering the robo advisors markets and their offerings are analyzed in detail in the report.
Hybrid Solutions will impact many financial services sectors
The drivers for hybrid robo innovation will come from several different sources within the global financial industry. For a start there is is the inspiration derived from the original robo advisor services. To this must be added the new opportunities that have arisen following the launch of a substantial range of new B2B technology providers, some focused only on the banking and wealth management industries and others with a broader scope.
The next 12 to 18 months will provide numerous demonstrations of the impact of the new (white label) technology providers and robo/conventional partnering on wealth management. In particular, as this report’s case studies show, the resulting hybrid wealth management solutions will spring up in a number of different parts of the global finance industry. Furthermore, with the help of robo technology, MyPrivateBanking expects to see a significant increase in quasi-wealth management services from sections of the industry that have been considered as distinct from wealth management, such as pension providers, fund managers and retail banks.
The robo model of investment portfolio management will be good enough in the eyes of a larger proportion of investors than the wealth management industry itself yet seems ready to recognize. Moreover, hybrid robo advisory services will increase the efficiency of advisors, in terms of numbers of clients served per professional, and the increasing numbers of hybrid solutions will also have a significant downwards effect on the client charges the market will bear.
Wealth managers should implement robo advisors solution fast, but thoughtful
The report highlights 20 different recommendations for consideration by wealth managers in weighing up hybrid robo opportunities, among them:
- Wealth Managers should be wary of assuming that one or more robo advisory elements can be just ‘added on’ to an existing service.
- Especially in the retail and affluent segments, tie-ups with non-financial retail services of various kinds will be of increasing importance for the success of robo advisory client recruitment.
- For most wealth managers the path to a hybrid solution will have several stages; this is fine but clients’ awareness of the capabilities of automation will be increasing rapidly in the next few years.
- In the higher wealth segments, wealth managers who automate ‘behind the scenes’ processes will be best placed to introduce client facing robo elements when they’ve established their client-base is ready.
This rigorous and detailed report tells you all you need to know for assessing this new stage in the evolution of robo advisors, the strengths and weaknesses and lessons to be learned from of a selection of existing hybrid robo advisor innovators and the implications for conventional wealth managers. This report makes a deep analysis of what constitutes ‘hybrid robo’ and draws out the important characteristics of this developing field. This is complemented by the MyPrivateBanking’s market projections exercise and together both give readers a clear idea of the scale of change that is underway.
In addition, in order to illustrate different types of hybrid robo solutions, five case studies of hybrid robo innovators are included that provide insights into different ‘pathways’ to hybrid solutions. The report’s recommendations chapter provides five outline strategic goals for hybrid solutions together with a larger number of detailed considerations for wealth managers preparing to implement a hybrid strategy.
For the report, the MyPrivateBanking analyst team covering the robo advisor development from its beginnings (see previous reports here) has further researched the leading trends (and providers) and engaged in discussions with service and technology providers as well as industry experts and wealth managers.
The report gives wealth managers, robo advisors, banks, IT-vendors and consultants answers to the following questions:
What constitutes a ‘hybrid robo’ and which are the most important characteristics? What are the different ‘pathways’ to hybrid solutions?
What is the status of the robo advisor market (full robo advisors and hybrid robo advisors) and how will it develop over the next 10 years?
How will the growth of the Hybrid robo advisor be differentiated by the retail and affluent wealth segments and the HNWI/UHNWI segments.
What are the learning points for wealth management from the hybrid solutions of five different institutions?“
Which features and functions should hybrid robo advisor solutions have to satisfy the needs of clients?
What are the implications of the hybrid robo advisor model to traditional wealth managers? How can they counter the threats? How can they benefit?
Institutional players entering the robo advisors markets and analysis of their offerings
Hybrid Robo Advisor and pure play robo advisor market size and growth globally, including a breakdown between North America and the rest of the world
Hybrid Robo Advisor market size and growth split between the retail and affluent wealth segments and the HNWI/UHNWI segments.
Five detailed case studies of hybrid robo solutions incl. Schwab Institutional Intelligent Portfolios, Investec and Jemstep, and Hedgeable
Recommendations on elements of human interaction that can enhance robo advisors so as to win more clients
20 recommendations for conventional wealth managers (for all wealth segments) to benefit from the opportunities that hybrid robo advisors present
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If you’re involved in the financial services industry at any level, you simply must understand the paradigm shift caused by robo advisors.
Investors frustrated by mediocre investment performance, high wealth manager fees and deceptive sales techniques are signing up for automated investment accounts at a record pace.
And the robo advisor field is evolving right before our eyes. Firms are figuring out on the fly how to best attract, service and upsell their customers. What lessons are they learning? Who’s doing it best? What threats are traditional wealth managers facing? Where are the opportunities for exponential growth for firms with robo advisor products or models?
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