Successfully reported this slideshow.
We use your LinkedIn profile and activity data to personalize ads and to show you more relevant ads. You can change your ad preferences anytime.
Robo-Advisors
Industry Changers
or Also-Rans?
December 2015
2 Robo-Advisors—Industry Changers or Also-Rans? Copyright © 2015 Deloitte Development LLC. All rights reserved.
Three ques...
3 Robo-Advisors—Industry Changers or Also-Rans? Copyright © 2015 Deloitte Development LLC. All rights reserved.
What do we...
How big, how fast?
5 Robo-Advisors—Industry Changers or Also-Rans? Copyright © 2015 Deloitte Development LLC. All rights reserved.
Robo-advic...
6 Robo-Advisors—Industry Changers or Also-Rans? Copyright © 2015 Deloitte Development LLC. All rights reserved.
Robo-Advis...
7 Robo-Advisors—Industry Changers or Also-Rans? Copyright © 2015 Deloitte Development LLC. All rights reserved.
Robo appea...
8 Robo-Advisors—Industry Changers or Also-Rans? Copyright © 2015 Deloitte Development LLC. All rights reserved.
A possible...
9 Robo-Advisors—Industry Changers or Also-Rans? Copyright © 2015 Deloitte Development LLC. All rights reserved.
We have se...
10 Robo-Advisors—Industry Changers or Also-Rans? Copyright © 2015 Deloitte Development LLC. All rights reserved.
Robo-advi...
11 Robo-Advisors—Industry Changers or Also-Rans? Copyright © 2015 Deloitte Development LLC. All rights reserved.
More than...
12 Robo-Advisors—Industry Changers or Also-Rans? Copyright © 2015 Deloitte Development LLC. All rights reserved.
Could we ...
Which business model
can win the day?
14 Robo-Advisors—Industry Changers or Also-Rans? Copyright © 2015 Deloitte Development LLC. All rights reserved.
Distinct ...
15 Robo-Advisors—Industry Changers or Also-Rans? Copyright © 2015 Deloitte Development LLC. All rights reserved.
What will...
16 Robo-Advisors—Industry Changers or Also-Rans? Copyright © 2015 Deloitte Development LLC. All rights reserved.
The likel...
Where is advice going?
18 Robo-Advisors—Industry Changers or Also-Rans? Copyright © 2015 Deloitte Development LLC. All rights reserved.
Robo-advi...
19 Robo-Advisors—Industry Changers or Also-Rans? Copyright © 2015 Deloitte Development LLC. All rights reserved.
Broadenin...
20 Robo-Advisors—Industry Changers or Also-Rans? Copyright © 2015 Deloitte Development LLC. All rights reserved.
Advanced ...
21 Robo-Advisors—Industry Changers or Also-Rans? Copyright © 2015 Deloitte Development LLC. All rights reserved.
Where we ...
22 Robo-Advisors—Industry Changers or Also-Rans? Copyright © 2015 Deloitte Development LLC. All rights reserved.
The autho...
23 Robo-Advisors—Industry Changers or Also-Rans? Copyright © 2015 Deloitte Development LLC. All rights reserved.
Reference...
Copyright © 2015 Deloitte Development LLC. All rights reserved.
36 USC 220506
Member of Deloitte Touche Tohmatsu Limited
Upcoming SlideShare
Loading in …5
×

Robo-Advisors: Industry Changers or Also-Rans?

11,391 views

Published on

The wealth management industry is entering a period of significant disruption, with robo-advice at the heart of this disruption. Digital, automated advice will likely become a standard expectation for the mass-affluent and mass-market segments. But big data and advanced analytics have the potential to dramatically expand the scope of roboadvice, incorporating financial planning into broader retirement, health, and wellbeing, and enabling quasi institutional research, which could then impact all investor segments. All wealth management firms should take notice. Read more: http://www2.deloitte.com/us/en/pages/consulting/articles/robo-advisors-capitalizing-on-growing-opportunity.html

Published in: Business

Robo-Advisors: Industry Changers or Also-Rans?

  1. 1. Robo-Advisors Industry Changers or Also-Rans? December 2015
  2. 2. 2 Robo-Advisors—Industry Changers or Also-Rans? Copyright © 2015 Deloitte Development LLC. All rights reserved. Three questions: How big, how fast can robo-advice grow in the US? What are the various business models competing for robo-advice and which one can win the day? Where is advice going, i.e., what’s the future of robo-advice? 1 2 3
  3. 3. 3 Robo-Advisors—Industry Changers or Also-Rans? Copyright © 2015 Deloitte Development LLC. All rights reserved. What do we mean by robo-advice? Example Robo-Advisor firmsRich Digital UI Digital user interface with cutting-edge user experience Personal Surveys Investor profile is personalized through surveys (demographics, risk, goals, etc.) Automated Portfolio Allocation Algorithm-based portfolio construction and allocation Automated Investment Recommendations Product recommendations
  4. 4. How big, how fast?
  5. 5. 5 Robo-Advisors—Industry Changers or Also-Rans? Copyright © 2015 Deloitte Development LLC. All rights reserved. Robo-advice could be really big $51 Tr.† $32 Tr. 2015 2025 $5 - $7 Tr. Robo-advice < $100 Bn. Mass Market 25% 40% 20% Mass Affluent 60% 25% 20% Affluent 80% 10% 5% High Net Worth 90% 5% 2% % Advised* % Advised Captured by Robo* % Not Advised Captured by Robo* 2015 2025 Robo-advice: 10% – 14% ($5 – $7 Tr.) High Net Worth 13% Mass Market 10% Affluent 18% Mass Affluent 59% Mass Market 5% Affluent 26% Mass Affluent 34% TOTAL AUM US Retail AUM US Retail AUM Key assumptions: High Net Worth 35% *Deloitte estimates based on industry knowledge and insights † Source: The Future of Wealth in America: Mapping Generational Shifts, Deloitte Center for Financial Services As used in this document, “Deloitte” means Deloitte LLP and its Subsidiaries, a subsidiary of Deloitte LLP. Please see www.deloitte.com/us/about for a detailed description of the legal structure of Deloitte LLP and its subsidiaries. Certain services may not be available to attest clients under the rules and regulations of public accounting.
  6. 6. 6 Robo-Advisors—Industry Changers or Also-Rans? Copyright © 2015 Deloitte Development LLC. All rights reserved. Robo-Advisors: Industry Changers or Also-Rans? Looking through a generational lens to confirm potential market size $- $10 $20 $30 $40 $50 $60 $70 $6 - $8 Tr. 2025 Silent Generation 5.0% Baby Boomers 7.0% Generation X 20.0% Millennials 40.0% Robo-Advice AUM Capture* 2025 Millennials 33% Silent Generation 5% Baby Boomers 25% Generation X 37% 2013 2015 2020 2025 2030 Total AUM ($Tr.) *Deloitte estimates based on industry knowledge and insights Source: The Future of Wealth in America: Mapping Generational Shifts, Deloitte Center for Financial Services Robo-Advice AUM 1925 1945 1960 1980 1997 Silent Generation Baby Boomers Generation X Millenials ~50% of Total
  7. 7. 7 Robo-Advisors—Industry Changers or Also-Rans? Copyright © 2015 Deloitte Development LLC. All rights reserved. Robo appeals to a new generation of investors, i.e., the re-wired investor Anywhere, anytime Wisdom of my tribe Skeptical of authority Risk defined as downside Typical mentalities of the re-wired investor Not a second class investor Do it yourself Stay in control Digital & personal Just me
  8. 8. 8 Robo-Advisors—Industry Changers or Also-Rans? Copyright © 2015 Deloitte Development LLC. All rights reserved. A possible growth pattern for robo-advice: When disruption happens, it can happen fastPaceofInnovation Exponential Business Innovation Exponential technology surges past status quo Exponential technology lags the status quo Growth stabilizes, and the next innovation starts Time (Years) Source: Monitor Deloitte Analysis
  9. 9. 9 Robo-Advisors—Industry Changers or Also-Rans? Copyright © 2015 Deloitte Development LLC. All rights reserved. We have seen disruption before 0% 2% 4% 6% 8% 10% 12% 14% 1991 1994 1997 2000 2003 2006 2009 2012 2015 0 200 400 600 800 1000 1200 1400 1600 1800 2000 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 0 2 4 6 8 10 12 14 1994 1995 1996 1997 1998 1999 2000 2001 0 5 10 15 20 25 30 35 40 45 1999 2001 2003 2005 2007 2009 2011 2013 ETF Market Share (Percentage) ETFs # of Accounts (Millions) Online Brokerages Estimated Total Assets ($ Billions) # of Payments per Quarter- PayPal (Billions) 401(k) Electronic Payments Source: Various (See Appendix)
  10. 10. 10 Robo-Advisors—Industry Changers or Also-Rans? Copyright © 2015 Deloitte Development LLC. All rights reserved. Robo-advice is poised for exponential growth Digitalized 1. Advice begins to be digitalized Deceptive 2. A lot of hype but incumbents ignore it Disruptive 3. Well funded players invest in robo- advice and combine it with human advice. Assets are ready to move Dematerializing 4. Add on of big data, predictive & algorithmic analytics, cognitive computing, etc. More complex. More holistic advice is automated Democratizing 6. Automated advice has become so cheap it is available to everyone Demonetizing 5. Advice is free, like an app on your smartphone Robo-advice is here today Source: Diamandis, Peter H., and Steven Kotler. Bold: How to Go Big, Achieve Success, and Impact the World. N.p.: Simon & Schuster, 2015. Print.
  11. 11. 11 Robo-Advisors—Industry Changers or Also-Rans? Copyright © 2015 Deloitte Development LLC. All rights reserved. More than just startups ≤ 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 • BlackRock (& FutureAdvisor) • Capital One Investing • Northwestern Mutual (& LearnVest) • Schwab Intelligent Portfolios • Vanguard Personal Advisor Services • Financial Guard • Hedgeable • HelloWallet • Personal Capital • SigFig • Wealthfront • Stockspot • Money on Toast • Betterment • Jemstep • MarketRiders • Flat Fee Portfolios • Folio Investing • Nutmeg • Portfolio Monkey • WealthBar • Wealthsimple Source: Various News Articles (See Appendix) Phase 1: New entrants (mostly start-ups): Connect/Advise/Invest Phase 2: Large investment and asset managers build their own solution or partner with new firms Phase 3: Banks and insurance companies enter the market (mostly through partnerships or acquisitions)
  12. 12. 12 Robo-Advisors—Industry Changers or Also-Rans? Copyright © 2015 Deloitte Development LLC. All rights reserved. Could we have it all wrong? Robo-advisor AUM is a drop in the ocean: < $100 Bn. in a $30+ Tr. Market* Time Growth Robo-advisors have not experienced the impact of a down market Fees Acquisition Costs Thin margins, compressed by low fees and high client acquisition costs Not showing exponential growth yet Traditional investment firms fight back and adapt their advisory models Robo-advice:~ 0% *Source: Monitor Deloitte Analysis Overcoming trust deficit associated with new brands
  13. 13. Which business model can win the day?
  14. 14. 14 Robo-Advisors—Industry Changers or Also-Rans? Copyright © 2015 Deloitte Development LLC. All rights reserved. Distinct and overlapping business models: Asset Manager Robo-advice front-end with a range of proprietary fund offerings Stand-Alone, Pure Digital, or Multi-Channel A start-up still mostly independent, with online and other digital channels, and potentially access to call center Corporate-Led Robo-advice to engage with plan participants or employees of corporations with Financial Wellness program Consumer Bank-Led Targeted at large base of retail banking, mass affluent clients (retention / acquisition) Multi-Advisory Model Robo-advice combined with other complementary advisory models within ‘closed loop’ system Affluent Private Bank Targeted at affluent client base, complementary to traditional affluent advisory model Insurance-Led Leveraging robo-advice to add more client value in distribution (from product push to broader wealth management) Premium-Branded Investment Firm Leverage high-end investment brand to overcome trust barrier and command premium fees
  15. 15. 15 Robo-Advisors—Industry Changers or Also-Rans? Copyright © 2015 Deloitte Development LLC. All rights reserved. What will drive success (i.e., capture market share)? Managing Cost of Client Acquisition Acquiring new clients (cost-effectively overcoming the trust-barrier) vs. cross- selling to an existing banking client base (or retirement plan participants) to scale up quickly Embracing Multi-Channel Strategy Combining digital and human channels (call center, in-branch, digital) Accessing Funding Balancing staying nimble with access to the funding needed to innovate and scale up Meeting New Regulatory Compliance e.g., pure algorithm-based advice satisfies DOL ruling and resolves conflicts of interest Tapping Non-Advisory Revenue Capturing economics of fund manufacturing, retaining profitable banking relationships (e.g., mass affluent), and shifting product mix (e.g., cash vs. ETF) Charging the Price that Fits e.g., pricing low to scale up vs. pricing high to signal premium value Combining Advisory Models, to Meet Client Expectations while mitigating cannibalization with existing customers moving to cheaper robo-advice Having the right DNA and Competencies Leveraging a firm’s Design DNA vs. Investment DNA vs. Financial Planning DNA
  16. 16. 16 Robo-Advisors—Industry Changers or Also-Rans? Copyright © 2015 Deloitte Development LLC. All rights reserved. The likely winners Achieve low client acquisition costs Consumer Bank-LedCorporate-Led Leverage brand to support higher pricing Maximize non-advisory revenue e.g., fund manufacture Offer the right mix of channels to meet customer needs Asset ManagerCorporate-Led Premium-Branded Affluent Private Bank Multi-Advisory Model Remain nimble to rapidly innovate next generation of advice Stand-Alone / Pure-Digital / Multi-Channel Consumer Bank-Led Consumer Bank-Led
  17. 17. Where is advice going?
  18. 18. 18 Robo-Advisors—Industry Changers or Also-Rans? Copyright © 2015 Deloitte Development LLC. All rights reserved. Robo-advice is barely advice today Goals-Based Advice Personal Insurance Robo-advice: Portfolio Allocation, Investment Recommendation Business Succession Planning Estate Planning Cash Flow Management Tax Planning and Tax Deferred Investments Moving from automation of portfolio allocation process to innovation around advice.
  19. 19. 19 Robo-Advisors—Industry Changers or Also-Rans? Copyright © 2015 Deloitte Development LLC. All rights reserved. Broadening the scope of advice Managing healthcare expenses, now and in the future Upsizing, downsizing, or buying a vacation home Home Taking care of your family and other people in your life Family Spending your free time in meaningful ways Leisure Volunteering, mentoring others, and giving to charities Giving Working in retirement, selling, or starting a business Work Bringing it all together and defining your financial goals Finances Advice is being automated across many different fields. Automation can also facilitate integration of advice across multiple fields Source: Merrill Lynch: “What are your priorities?”, www.ml.com Health
  20. 20. 20 Robo-Advisors—Industry Changers or Also-Rans? Copyright © 2015 Deloitte Development LLC. All rights reserved. Advanced analytics could be an exponential catalyst MIS/Reporting Monitoring everyday financial and operational performance Descriptive Providing a better understanding of business impact and customer response Predictive Establishing data driven guidance for decisions in the midst of uncertainty Algorithmic Tracking digital activity and adjusting responses in real time CognitiveMimicking the human brain through self- learning systems, using data mining, pattern recognition, and natural language processing
  21. 21. 21 Robo-Advisors—Industry Changers or Also-Rans? Copyright © 2015 Deloitte Development LLC. All rights reserved. Where we could be heading Source: Monitor Deloitte Analysis Traditional firms execute on advice Technology firms own the customer Apple HEALTH HOMEFAMILY LEISURE FINANCES Where Advice is Created & Delivered Where Advice is Acted Upon “Robo-Advisors: Industry Changers or Also-Rans” is an independent publication and has not been authorized, sponsored, or otherwise approved by Apple Inc.”
  22. 22. 22 Robo-Advisors—Industry Changers or Also-Rans? Copyright © 2015 Deloitte Development LLC. All rights reserved. The authors Gauthier Vincent Principal, Head of US Wealth Management Deloitte Consulting LLP New York 203 905 2830 gvincent@deloitte.com Phillip Klein Manager, Asset & Wealth Management Deloitte Consulting LLP New York 347 226 1506 pklein@deloitte.com Adam Schneider Principal, Senior Advisor, Center for Financial Services Deloitte Consulting LLP New York 212 436 4600 aschneider@deloitte.com
  23. 23. 23 Robo-Advisors—Industry Changers or Also-Rans? Copyright © 2015 Deloitte Development LLC. All rights reserved. References Slide 6 “Global Wealth Report 2014.” Credit Suisse Research Institute. 2014. http://economics.uwo.ca/people/davies_docs/credit-suisse-global-wealth-report-2014.pdf “CapGemini World Wealth Report 2013.” Capgemini and RBC Wealth Management. 2013. https://www.capgemini.com/resource-file-access/resource/pdf/wwr_2013_0.pdf “LPL Goes Downstream to Target $7 Trillion Middle Market.” WealthManagement.com. Apr 2012. http://wealthmanagement.com/ibds/lpl-goes-downstream-target-7-trillion-middle-market “Levels of Wealth and the Need for a Financial Advisor.” SpectremGroup. http://spectrem.com/Content/Level-Wealth-Need-Financial-Advisor.aspx “Today's affluent investors: insights and opportunities.” Vanguard and SpectremGroup. https://advisors.vanguard.com/iwe/pdf/FASSRSB2.pdf Slide 10 ETFs. “2014 Investment Company Fact Book.” Investment Company Institute. 2014. https://www.ici.org/pdf/2014_factbook.pdf 401(k). “History of 401(k) Plans: An Update.” Employee Benefit Research Institute. Feb 2005. http://www.ebri.org/pdf/publications/facts/0205fact.a.pdf Online Brokerages. “Online Trading: An Internet Revolution.” Jennifer Wu, Michael Siegel, and Joshua Manion. MIT. Jun 1999. http://web.mit.edu/smadnick/www/wp2/2000-02-SWP%234104.pdf Electronic Payments. “Chart of the Week: PayPal’s Payment Volume (2001 – 2013).” Payments News. Apr 2013. http://www.paymentsnews.com/2013/04/chart-of-the-week-paypals-payment-volume-2001-2013.html Slide 12 “BlackRock to Buy FutureAdvisor, Signaling Robo-Advice is Here to Stay.” Forbes. Aug 2015. http://www.forbes.com/sites/samanthasharf/2015/08/26/blackrock-to-buy-futureadvisor-signaling-robo- advice-is-here-to-stay/ “Capital One joins the hybrid robo movement.” InvestmentNews. Jun 2015. http://www.investmentnews.com/article/20150611/FREE/150619980/capital-one-joins-the-hybrid-robo- movement “Northwestern Mutual purchases LearnVest.” InvestmentNews. Mar 2015. http://www.investmentnews.com/article/20150325/FREE/150329948/northwestern-mutual-purchases- learnvest “Quick Take: Intelligent Portfolios from Charles Schwab will Ignite the Robo-Advisor Market.” Forrester. Mar 2015. https://www.forrester.com/Quick+Take+Intelligent+Portfolios+From+Charles+Schwab+Will+Ignite+The+R oboAdvisor+Market/fulltext/-/E-res122286 “Quick Take: Vanguard’s Personal Advisor will Transform the Financial Advice.” Forrester. May 2015. https://www.forrester.com/Quick+Take+Vanguards+Personal+Advisor+Will+Transform+The+Financial+Ad vice+Business/fulltext/-/E-res122744 “Stockspot – Online investment adviser | Robo-advice.” Stockspot. https://www.stockspot.com.au/ “SigFig – The Easiest Way to Manage & Improve Your Investments | Free online personal finance investment software.” Sigfig. https://www.sigfig.com/site/#/home/am “Robo advisors: The next big thing in investing.” CNN Money. Jun 2015. http://money.cnn.com/2015/06/18/investing/robo-advisor-millennials-wealthfront/ “Robo-advisor Wealthfront bets on tech-savvy millennials.” CNBC. May 2015. http://www.cnbc.com/2015/05/12/robo-advisor-wealthfront-bets-on-tech-savvy-millennials.html “Financial Guard.” Financial Guard. https://www.financialguard.com/ “Hedgeables Robo Advisor 2.0 Platform Automates Risk Managed Investing.” Finovate. May 2015. http://finovate.com/hedgeables-robo-advisor-2-0-platform-automates-risk-managed-investing/ HelloWallet: Employee Financial Wellness Program.” HelloWallet. http://www.hellowallet.com/ “Personal Capital.” Personal Capital. https://www.personalcapital.com/ “Flat Fee Portfolios: Fee-Based Financial Advisors and Investments | Flat Fee Portfolios.” Flat Fee Portfolios. http://www.flatfeeportfolios.com/ “Folio Investing | Investment Brokerage with Commission-Free Online Trading.” Folio Investing. https://www.folioinvesting.com/folioinvesting/home/ “Money on Toast – UK Investment Management | Online Financial Advisor.” Money on Toast. https://www.moneyontoast.com/ “Nicola Partners with Robo-Advisor WealthBar.” Advisor.ca. Jun 2015. http://www.advisor.ca/news/industry-news/vancouver-wealth-manager-partners-with-robo-advisor- 185841 “Power Financial Corp to invest up to $30-million in robo-adviser Wealthsimple.” Financial Post. Apr 2015. http://business.financialpost.com/news/fp-street/power-financial-corp-to-invest-up-to-30-million-in- robo-adviser-wealthsimple “Online wealth advisers set for client influx: Nutmeg CEO.” Reuters. Jun 2015. http://www.reuters.com/article/2015/06/12/us-banking-wealth-nutmeg-idUSKBN0OS0W420150612 “Investment Analysis and Asset Allocation Software, Online Portfolio Management Tools | Portfolio Monkey.” Portfolio Monkey. https://www.portfoliomonkey.com/ “Online Portfolio Management and Retirement Investing: marketriders.com” MarketRiders. http://www.marketriders.com/ “Orion Partners Up with Robo Jemstep.” WealthManagement.com. Apr 2015. http://wealthmanagement.com/blog/orion-partners-robo-jemstep “Betterment catches up to Wealthfront in AUM as robo competition reaches boiling point.” InvestmentNews. Jul 2015. http://www.investmentnews.com/article/20150730/FREE/150739992/betterment-catches-up-to- wealthfront-in-aum-as-robo-competition
  24. 24. Copyright © 2015 Deloitte Development LLC. All rights reserved. 36 USC 220506 Member of Deloitte Touche Tohmatsu Limited

×