Summary List Placement
Less than one in ten US households use robo-advisors. This is according to analytics firm Hearts & Wallets’ survey of 5,641 households, as well as data from the US Census Bureau, Federal Reserve Flow of Funds and Survey of Consumer Finances, the Financial Times reports.
Representing around 10 million households, the data highlights that there’s still significant room for the sector to grow. Out of the $43 trillion North American wealth management market, Insider Intelligence estimates that robo-advisors only had $330 billion in AUM at the end of 2019, but we expect this number to rise to $830 billion by 2024.
Leading wealthtechs aim to capitalize on this steady growth, although incumbent robo-advisory services remain much larger in terms of AUM.
Standalone robo-advisory apps have carved out their own market share, especially among younger demographics. Wealthtechs are opening up the industry to less affluent, younger customers who have previously been excluded from wealth management services due to their high costs and initial deposit requirements. Betterment is the biggest fintech robo-advisor, managing $22 billion as of March 2020. It is closely followed by Wealthfront, which holds $20 billion in assets as of September 2019.
However, more than half of investors who use robo-advisors rely on platforms offered by their existing wealth manager, per the Hearts & Wallets report. Vanguard’s Personal Advisor Services is the biggest robo-advisor in the US as of Q4 2019, with over $118 billion in AUM, and most investors are existing clients. And around 13% of Charles Schwab’s investors use a robo-advisory platform, including its proprietary Schwab Intelligent Portfolios, with $43 billion in AUM.
And we think the major economic downturn caused by the coronavirus pandemic will lead many to seek human advice in addition to tech offerings—benefiting incumbents over wealthtechs. The pandemic has caused high market volatility, with the Dow Jones Industrial Average and S&P 500 recording their worst Q1 performance in decades.
This is causing investors to be wary and require more reassurance and guidance from their wealth managers, with incumbents traditionally offering more human advice than wealthtechs. Schwab Intelligent Portfolios Premium, for example, offers unlimited 1:1 guidance from a certified financial planner for $30 a month, while Betterment charges a fee of $199 for one 45-minute call, and Wealthfront doesn’t offer any human advice.
As human advice becomes more important for clients, pure robo-advisors like Wealthfront should evaluate the costs and benefits of a more hybrid model, such as introducing video conferencing and 24/7 human support alongside automated portfolio management.
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Source:: Business Insider