The subject of the "robo-advisor" is already shaping how the world's wealth management sector is doing business, a study finds.

Robo-advisors are already among us and changing how wealth managers work.

The disruptive effects of robo-advisors and automated investment services to the traditional wealth management industry are growing. Whereas the market development in 2014 was dominated by the launch and growth of start-ups, established wealth management providers have started to strike back and are opening up to the robo-trend themselves, a report says.

A new report called Robo-Advisors 2.0: How Automated Investing is Infiltrating the Wealth Management Industry, by Swiss research company MyPrivateBanking Research, explores the impact of such technology.

The report identifies three main trends shaping the development in the robo-advisor industry:

- The (established) wealth management industry as a whole is opening up to the robo-trend as signified most prominently by the new offering by Schwab Intelligent Portfolios. But other banks and wealth managers have already created their own automated advice solutions such as BMO, Vanguard, Ritholtz, Fidelity and TD Ameritrade;

- Some robo-advisors are acting more and more as technology providers, offering white label solutions and software platforms to other advisors, or are seeking alliances with established wealth management players. The deal between Fidelity and Betterment is only one, broadly reported example; and

- There are increasing opportunities to supplement robo-services with other, adjacent newly automated services such as financial planning. For example new players like Advizr and iQuantifi now provide algorithmically based planning solutions while LearnVest has harnessed technology to provide a highly cost effective hybrid human and automated planning solution.

“We see a growing awareness on the part of conventional wealth managers of the need to respond to the challenge that robo-advisors present,” Francis Groves, senior analyst at MyPrivateBanking, said. “A number of important and influential players in the financial services industry begin to engage with the kinds of technology that were seen as the identifying characteristic of robo-advisors exclusively less than a year ago. And this is just the beginning of a significant trend for the next few years,” Groves added.

AuM impact
The research predicts that global assets under management of the robo-advisor services will reach $20 billion by the end of 2015. The lion’s share of these assets, at 79 per cent, will be managed by robo-advisors based in the US. Within the five following years the global AuM of robo-advisors is forecast to grow to an estimated $450 billion (2020).

This number does not even include assets which are invested under the recommendations of an automated financial advisor but controlled by private investors and the assets under management of existing established wealth managers offering some kind of robo-like or automated service.

“The robo-advisor phenomenon will force the traditional wealth management industry to reconsider the generally accepted belief that wealth clients will always prefer the face-to-face contact of their own dedicated personal advisor,” Groves said. “Now we are beginning to see newly applied technology, such as financial planning tools and natural language generation engines, which have the potential to provide practical automated substitutes to personal contact with an advisor."

The report looked at 19 robo-advisor firms, with eight in North America, six in Europe and five in Asia-Pacific, based on 48 criteria. The firms were 8 Now!; AssetBuilder; Betterment; FinanceScout 24 (FinanceScout 24 Managed Depot); futureadvisor; LearnVest; MoneyFarm; Money on Toast; Nutmeg; Personal Capital; Quirion; Rebalance IRA; Stockspot; Swissquote ePrivate Banking; True Wealth; Vaamo; Wealthfront; Wealthsimple; WiseBanyan.

Those services analysed that are offered by current wealth managers were BMO InvestorLine, adviceDirect; Fidelity Institutional Wealth Services; Ritholz Wealth Management – Liftoff; Charles Schwab, Schwab Intelligent Portfolios; TD Ameritrade Institutional. The technology vendors for the sector that were examined were Advizr; iQuantifi; Jemstep Advisor Pro; Narrative science; Riskalyze; Upside; Yseop.