Robo advising can no longer be ignored

Alessandro Nilo, Head of Quantitative Strategy

Robo advising can no longer be ignored

Beyond the hype, robo-advising could actually complement private banks’ service offering.  

Robo advisors are part of a larger trend in financial tech­nology (fintech), which is disrupting the role of large, established compa­nies in the financial sector. These are essentially advanced computer algo­rithms that, by taking into consider­ation client preferences and risk appe­tite, can automatically suggest, build and manage a robust, bespoke tactical asset allocation.

Up to now, the rocky start of many robo advice platforms has been good news for banks. The reason for this that the current crop of robo advice platforms is not very sophisticated. It is not clear how well they perform (because they are rooted in old, inefficient econometric models) and they have often proved to be economically unviable on a stand-alone basis. The platforms’ problems have stemmed from their excessive focus on lowering pricing and on removing the human wealth advisor from the equation. The principle, according to which the less you spend, the more you save, could rapidly turn out to be an unsustainable model for fintech start-ups due to client frustration, especially with investment performance. This provides a chance for private banks to show that they remain at the cutting edge of the wealth management business. They can do this by renovating their businesses, providing new digital products with an impeccable level of quality that, as with luxury brands, remains constant over time.

We believe current robo advice solutions will evolve into a more sophisticated ‘Robo-4-Advisors’ service that is integrated into existing private banks’ offering, with cybers and robots proving increasingly deci­sive in helping advisers to find quick, easy-to-access and intelligent solu­tions for clients. In essence, we do not think that the digital disruption cur­rently underway will replace the tra­ditional investor-advisor relationship, but rather, it will emerge as a critical complement to institutions’ overall portfolio of services.

It would be unwise to consider robo advice as simply hype that will not impact the wealth management industry. A solid, evidence-based selection of a clear, easily explainable suite of multi-asset systematic “intelligent” strategies may soon start to appear as satellite investments in clients’ portfolios. Robo advising, like digital develop­ments in general, could well be key to the future success of wealth manage­ment. Progres­sively, investors will grow to feel that traditional wealth management and digital relationships can co-exist and provide a better customer experience. In conclusion, it is clear that fintech is here to stay and that banks that fail to invest strategically in this area may be left behind.

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