Robo-advice: going viral? CS Aug 15

Thinking

Robo-advice: going viral?

There is a lot of noise and indeed fast growth in the robo advisory business, albeit from a small base.

Low fees are a sure reason in part, with some at 20bps or less. The preferences of high income, low asset base savers that are familiar and comfortable with researching and transacting online will also be a factor.  In the UK the costs of seeking face-to-face advice post RDR create the conditions in which the proposition can grow.

So what might it mean across the value chain, and who can win and lose?

In traditional advisory businesses there is a threat and an opportunity. The threat is clear, one of substitution by a lower cost channel for at least some of the business.  Indeed some advisory businesses have been actively shedding client relationships that have been too small and uneconomic.  Could the trend change around? Could there be an opportunity if integrated with access to a human advisor either face-to-face, or online, allowing a better cost model to extend reach?  We have seen before that the combination of ‘bricks and clicks’ can generate a strong and economic customer proposition.

We know that the banking and insurance industry is putting a lot of effort and investment behind digital initiatives, again as a mix of defensive and proactive strategies, with some making investments in technology companies.

Beyond that there are asset managers building capability to reengage their customer base, maybe changing the tide in which relationships have moved to platforms.  What seems clear is that the market is changing, and that it will take time for a new equilibrium to emerge during which time there is opportunity for those who execute well to steal a march.

We have seen big players with big budgets make a statement in the digital advice space. There have also been new propositions starting from scratch that have grown with pace.  It remains to be seen whether success here will require big data, big budget and big brand, or whether there will be market disruption to come maybe from the technology industry.  Whatever the outcome, it seems that there is no part of the industry that is untouched. 

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By Colin Shapiro

Responsible for Product Development at Knadel, Colin is a consultant with extensive experience gained in both line and consulting roles. He has deep experience of outsourcing, having worked within the outsourcing industry as well as advising clients as a consultant.

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