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Robo Advisors & Beyond
Daniele Bernardi – Barcellona 08/05/2017
2
The Hyper Trend
Sharing Economy
Open Source
Digitalization
Internet
3
The Financial Hyper Trend
Robo
Advisor
Online
Banking
Online
Trading
Social
Investing
Fintech in Banking business
6
Robo-Advisors (1.0) are automated investment
solutions which provide portfolio rebalancing
using trading algorithms base...
7
First of all…
8
SafeManagement
Self-management
Application on-line to save money
9
How can I invest on-line?
OnlineBrokers
10
Self-management
I’m a trader on my own
11
Sharinginvestment
Self-management
I prefer to track professionals
RoboAdvisors
12
Self-management Need Assistance
I need assistance & advisory
RoboAdvisors
OnlineBrokers
13
SafeManagement
Sharinginvestment
Self-management Need Assistance
Fintech investment services
Robo Advisors analysis
One Year ago…
15
I più grossi Robo Advisors
16
31 March 2017
17
0,06
0,09
0,12
0,73
0,97
4,04
5,01
8,00
31,20
107,80
0 20 40 60 80 100 120
Hedgeable
Wisebanyan
Sigfig
As...
31 March 2017
18
Source: SEC elaboration: DIAMAN SCF
23,4%
92,7%
27,4%
9,2%
21,2%
92,3%
43,0%
56,9%
280,5%
247,7%
0% 50% 1...
Fees VS AUM
19
0,0% 0,10% 0,20% 0,30% 0,40% 0,50% 0,60% 0,70% 0,80% 1%
AUM
0,05bn0,10bn0,50bn1bn5bn30bn100bn
Max. Fee
Robo Advisors Business Models
21
Robo
Advisory
Copy-
traders
Trading
On-line
Investm
ent Firm
services
Indipen
dent
Advisory
Clients
Bank
services
Too m...
ASCOSIM - 21 Settembre 2016
22
Bank
Account
Clients
Broker
Advisory
Distribut
ion
Product
Value
Chain
23
Bank-centric business model
Broker
Advisory
Distribu
tion
Product
Bank
Account
Retail
Bank Clients
24
Broker
Advisory
Product
Bank
Account
Clients
Advisor-centric business model
25
One example – best in class
219
8,00
36,01
66,35
0
50
100
150
200
250
Employees AUM (b) Estimated
Revenues (m)
Estimate...
26
Broker Advisory
Products
Issuer
Bank
Account
Clients
Product-centric business model
27
One example – best in class
659
107,80
323,39
293,84
0
100
200
300
400
500
600
700
Employees AUM (b) Estimated
Revenues...
28
Broker
Advisory
Product
Bank
Account
Clients
Broker-centric business model
29
One example – best in class
44
31,20 31,20
21,16
0
5
10
15
20
25
30
35
40
45
50
Employees AUM (b) Estimated
Revenues (m...
Major criticisms of Robo Advisors
a drop in the ocean
31
a drop in the ocean
Mutual Funds
15 trillion
ETFs
2 trillion
Robo Advisors
200 Billion
Hedge Funds
...
Obsolete Algorithm
q  70% of Robo Advisors uses MPT
for portfolio’s optimization
q  20% uses constant mix for
rebalancin...
Market crash
Deficit of trust
↓↓↓↓
Robo Advisors firm haven’t
experienced the impact of a down
market
↑↑↑↑
No human mediat...
Costumer Care
q  For many people is important to
listen and believe someone
q  An uncertain person ultimately
does not d...
Targeting retail customers
Only Nerds
+
Few Affluent
+
No HNWI
5
36
Wealth Pyramid
Needy 69,4%
Retail
22,5%
Affluent 7,5%
HNWI 0,6% 87,5 Trillion (39,3%)
95,9 Trillion (43,1%)
32,1 Trillio...
37
HNWI served by Robo Advisory
% HNWI % Asset HNWI
Charles Schwab less than 10% up to 25%
Vanguard less than 10% up to 50...
Squeeze of fees
Low fees
↓↓↓↓
Negative cash flow
↑↑↑↑
High Acquisition costs
6
DISRUPTIVE INNOVATION
status quo
↓
simplification
↓
commoditisation
TRADITIONAL
INDUSTRY
DISRUPTIVE
INNOVATION
SUSTAINING
INNOVATION
SUSTAINING INNOVATION
added-value
↑
simplification
↑
status quo
Robo Advisors Challenges
And the winner is…
44
On line
Marketing
Human
advisors
Products
Best
Robo
Advisor
Robo4
Advisor
Victory’s motivations
Cheep
Robo
Advisor
Robo Advisors challenges
q  Digitalization of Knowledge
mixed with Human assistance
q  More sustainable products to
scal...
q  Robo 4 Asset Managers since 2002
q  Robo 4 Fund Managers since 2007
q  Robo 4 Advisors since 2009
q  Robo investing...
47
Return Parity™
Target Strategy
Risk Parity
Black-Litterman
Golden Ratio
Markowitz
Constant Mix
Equity Weighted
Relative...
Thanks for the attention
www.facebook.com/daniele.bernardi2
www.linkedin.com/in/danielebernardi
www.youtube.com/user/danie...
Global Derivatives Trading Risk & Management Event - Barcelona, 8/12 May 2017 - Robo-Advisors and Beyond
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Global Derivatives Trading Risk & Management Event - Barcelona, 8/12 May 2017 - Robo-Advisors and Beyond

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Mapping the global Robo-advisory phenomenon.
Establishing the principal business model of Robo-Advisors and identifying the opportunities for the quant industry

Published in: Economy & Finance
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Global Derivatives Trading Risk & Management Event - Barcelona, 8/12 May 2017 - Robo-Advisors and Beyond

  1. 1. Robo Advisors & Beyond Daniele Bernardi – Barcellona 08/05/2017
  2. 2. 2 The Hyper Trend Sharing Economy Open Source Digitalization Internet
  3. 3. 3 The Financial Hyper Trend Robo Advisor Online Banking Online Trading Social Investing
  4. 4. Fintech in Banking business
  5. 5. 6 Robo-Advisors (1.0) are automated investment solutions which provide portfolio rebalancing using trading algorithms based on passive investments and diversification strategies, which engage individuals with digital tools featuring advanced customer experience, to guide them through a self-assessment process and shape their investment behaviour towards rudimentary goal based decision-making. Definition
  6. 6. 7 First of all…
  7. 7. 8 SafeManagement Self-management Application on-line to save money
  8. 8. 9 How can I invest on-line?
  9. 9. OnlineBrokers 10 Self-management I’m a trader on my own
  10. 10. 11 Sharinginvestment Self-management I prefer to track professionals
  11. 11. RoboAdvisors 12 Self-management Need Assistance I need assistance & advisory
  12. 12. RoboAdvisors OnlineBrokers 13 SafeManagement Sharinginvestment Self-management Need Assistance Fintech investment services
  13. 13. Robo Advisors analysis
  14. 14. One Year ago… 15
  15. 15. I più grossi Robo Advisors 16
  16. 16. 31 March 2017 17 0,06 0,09 0,12 0,73 0,97 4,04 5,01 8,00 31,20 107,80 0 20 40 60 80 100 120 Hedgeable Wisebanyan Sigfig AssetBuilder Future Advisor Personal Capital Wealthfront Betterment Charles Schwab Vanguard AUM (billion$) AUM ($billion) Source: SEC elaboration: DIAMAN SCF
  17. 17. 31 March 2017 18 Source: SEC elaboration: DIAMAN SCF 23,4% 92,7% 27,4% 9,2% 21,2% 92,3% 43,0% 56,9% 280,5% 247,7% 0% 50% 100% 150% 200% 250% 300% Hedgeable Wisebanyan Sigfig AssetBuilder Future Advisor Personal Capital Wealthfront Betterment Charles Schwab Vanguard Year Over Year Growth Rate YoY Growth Rate Average 46%
  18. 18. Fees VS AUM 19 0,0% 0,10% 0,20% 0,30% 0,40% 0,50% 0,60% 0,70% 0,80% 1% AUM 0,05bn0,10bn0,50bn1bn5bn30bn100bn Max. Fee
  19. 19. Robo Advisors Business Models
  20. 20. 21 Robo Advisory Copy- traders Trading On-line Investm ent Firm services Indipen dent Advisory Clients Bank services Too much opportunities…
  21. 21. ASCOSIM - 21 Settembre 2016 22 Bank Account Clients Broker Advisory Distribut ion Product Value Chain
  22. 22. 23 Bank-centric business model Broker Advisory Distribu tion Product Bank Account Retail Bank Clients
  23. 23. 24 Broker Advisory Product Bank Account Clients Advisor-centric business model
  24. 24. 25 One example – best in class 219 8,00 36,01 66,35 0 50 100 150 200 250 Employees AUM (b) Estimated Revenues (m) Estimated costs (m) Betterment Source: SEC elaboration: DIAMAN SCF
  25. 25. 26 Broker Advisory Products Issuer Bank Account Clients Product-centric business model
  26. 26. 27 One example – best in class 659 107,80 323,39 293,84 0 100 200 300 400 500 600 700 Employees AUM (b) Estimated Revenues (m) Estimated costs (m) Vanguard Source: SEC elaboration: DIAMAN SCF
  27. 27. 28 Broker Advisory Product Bank Account Clients Broker-centric business model
  28. 28. 29 One example – best in class 44 31,20 31,20 21,16 0 5 10 15 20 25 30 35 40 45 50 Employees AUM (b) Estimated Revenues (m) Estimated costs (m) Charles Schwab Source: SEC elaboration: DIAMAN SCF
  29. 29. Major criticisms of Robo Advisors
  30. 30. a drop in the ocean 31 a drop in the ocean Mutual Funds 15 trillion ETFs 2 trillion Robo Advisors 200 Billion Hedge Funds 15 trillion 1
  31. 31. Obsolete Algorithm q  70% of Robo Advisors uses MPT for portfolio’s optimization q  20% uses constant mix for rebalancing the portfolio q  Only 10% uses proprietary algorithms (es. Risk Parity) 2
  32. 32. Market crash Deficit of trust ↓↓↓↓ Robo Advisors firm haven’t experienced the impact of a down market ↑↑↑↑ No human mediation 3
  33. 33. Costumer Care q  For many people is important to listen and believe someone q  An uncertain person ultimately does not decide q  For HNWIs the asset allocation is only one of their hundred needs 4
  34. 34. Targeting retail customers Only Nerds + Few Affluent + No HNWI 5
  35. 35. 36 Wealth Pyramid Needy 69,4% Retail 22,5% Affluent 7,5% HNWI 0,6% 87,5 Trillion (39,3%) 95,9 Trillion (43,1%) 32,1 Trillion (14,4%) 7,3 Trillion (3,3%)
  36. 36. 37 HNWI served by Robo Advisory % HNWI % Asset HNWI Charles Schwab less than 10% up to 25% Vanguard less than 10% up to 50% Betterment less than 10% up to 25%
  37. 37. Squeeze of fees Low fees ↓↓↓↓ Negative cash flow ↑↑↑↑ High Acquisition costs 6
  38. 38. DISRUPTIVE INNOVATION status quo ↓ simplification ↓ commoditisation
  39. 39. TRADITIONAL INDUSTRY DISRUPTIVE INNOVATION SUSTAINING INNOVATION
  40. 40. SUSTAINING INNOVATION added-value ↑ simplification ↑ status quo
  41. 41. Robo Advisors Challenges
  42. 42. And the winner is…
  43. 43. 44 On line Marketing Human advisors Products Best Robo Advisor Robo4 Advisor Victory’s motivations Cheep Robo Advisor
  44. 44. Robo Advisors challenges q  Digitalization of Knowledge mixed with Human assistance q  More sustainable products to scale the client’s relationship q  Quantitative models more adequate to “new financial world”
  45. 45. q  Robo 4 Asset Managers since 2002 q  Robo 4 Fund Managers since 2007 q  Robo 4 Advisors since 2009 q  Robo investing since 2015 Who is DIAMAN? 46 Quantitative Financial Advisor for Institutional
  46. 46. 47 Return Parity™ Target Strategy Risk Parity Black-Litterman Golden Ratio Markowitz Constant Mix Equity Weighted Relative Strength Momentum Absolute Return Relative Return Equity Weighted Relative Value   Quality Growth Market TimingCurrency Overlay Tactical Overlay Strategic Asset Allocation Tactical Asset Allocation Long/Short Volatility Long/Short Equity Market Neutral Corporate Bond Analysis Government Bond Analysis Risk on / Risk off
  47. 47. Thanks for the attention www.facebook.com/daniele.bernardi2 www.linkedin.com/in/danielebernardi www.youtube.com/user/danielebernardi twitter.com/danieleDIAMAN 48 www.diaman.it/blog daniele.bernardi@diaman.it

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