A report by MyPrivateBanking Research explores a form of "robo-advisor" that does not jettison the human element.

Rather like botanists discovering new species in the jungle, watchers of the wealth management industry at MyPrivateBanking Research have found a new life-form among robo-advisors.

A study by the Swiss research firm, issued exclusively to this news service, analyses the model of a hybrid robo/personal contact service. Automated processes deliver many wealth management functions for a client but the role of a human advisor is not removed. The study expects that these hybrids will grow by size to $3.7 trillion of assets globally by 2020. The total market size for robos will stand at $16.3 trillion by 2025 and that number will be 10 per cent of total investable wealth around the world by that date, it predicts.

In contrast, “pure” robo advisors – where no human advisors are involved – are likely to hold only 1.6 per cent of total global wealth by the middle of the next decade.

The term robo advisor has become a theme in wealth management over the past few years. As regulatory burdens have mounted and some private banks and other companies have raised minimum investable asset sizes for clients to remain profitable, the “robos” are seen as a way to continue offering advice, but at lower cost. In the UK there are business models such as Nutmeg or Money On Toast; in the US, Wealthfront and Betterment. Meanwhile, Bank of Montreal in Canada recently entered the robo field. 

Traditional players say they need to provide robo offerings to avoid being sidelined. Bank industry luminaries such as Morgan Stanley CEO James Gorman and Wells Fargo chief financial officer John Shrewsberry have said their firms must develop robo-advisors to complement their sales force (source: Bloomberg). As wealth managers encourage some clients to access services via mobile devices and embrace tech, the robo trend seems a natural one. To see a recent report by Deloitte about the robo trend, see here.

“Hybrid robo solutions are a dynamic and also unstable new phase in the wealth management industry’s transformation,” said Francis Groves, senior analyst of MyPrivateBanking. “We expect 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.”

In the analyst's view, 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. 

Quasi-wealth
The research firm 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 recognise,” predicted Groves. 

"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," he added.

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, the authors say, 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 have established their client-base is ready.