Talking about robo-advisor (a deliberately ugly and "grotesque" name used to define i financial advisory systems and online asset management) we generally refer to a financial services 100% online and low-cost (thanks also to their high scalability) aimed at the mass market.
The phenomenon is growing rapidly in the USA, where a search for myprivatebanking.com he estimates that in 5 years they will reach $255 billion in assets under management (that is, money under management, in a broad sense).
I personally don't think robo-advisors will ever replace real-life advisors. However, I believe – contrary to general opinion – that the industry that will be most affected (for better or for worse) by the advent of these sophisticated online management platforms is that of private banking.
Why do rich people like robo-advisors?
The reasons that make me think that, at least initially, will mainly be customers with greater financial resources five are using the new online wealth management services.
1. Risk management: Major assets often include investments in sophisticated financial instruments such as derivatives and alternative asset classes (hedge funds or private equity funds). These require management based on state-of-the-art risk management systems and algorithms. I hope I don't disappoint those who thought their private banker was a sort of Pico della Mirandola, capable of highly sophisticated calculations of efficient frontiers and volatility cones with pen and pencil!
2. Additionally, many robo-advisors focus on operational efficiencies achievable through order fulfillment automation and the use of low-cost products. Therefore, results also derive from this in terms of price.
3. Innovation pioneers: often the wealthiest public is also the most evolved and attentive to novelties, they love to be pioneers of the latest fashion, accessories, technology… (think of the aura distatus symbol that surrounds the Apple Watch).
4. Be protagonists: private clients, for reasons of culture and skills, often like to manage the most liquid part of the movable assets themselves. It is no coincidence that in Italy many customers of this target choose the "administered" regime.
5. Transparency: in a context where people are increasingly interested in their savings and are used to ever more and better information on the web, the level of transparency towards the customer offered by private banking services is scarce and reporting is often outdated and inadequate.
6. The "large" is more difficult: the margins of private banking with respect to the movable part of the assets (which could be managed with the aid of platforms with a high technological content) is decidedly lower than the margins that banks realize on smaller customers, both for reasons of volumes and of "bargaining power" of customers.
The quality of the asset allocation, carried out with cutting-edge quantitative methodologies and integrated with careful supervision of the human element, can be clearly superior and also incorporate more expensive but liquid and sometimes better products, such as investment funds or certificates.
Who said that the value proposition of robo-advisors should be focused only on low cost rather than quality superiority?
Robo advisor: from a quantitative approach to a qualitative approach
This interesting graph (click on the photo to enlarge), produced by www.scorpiopartnership.com, highlights the most important aspects of an investor's choice to rely on a wealth manager.
As can be seen from the figure, the most important aspects for the richest customers (green line in the graph) are not so much those of price, but rather the value of the brand, the organizational structure, the reputation and - surprisingly - the richest customers appreciate the activity on social media, the quality of the marketing and the site, more than those of average size.
If today, as highlighted in a Goldman Sachs research on wealth management, the so-called Henrys ("High Earning, Not Rich Yet"), i.e. young high-income professionals (probably the rich of tomorrow) are the major users of robo -advisor, there are many interesting opportunities that private banking could already seize today.
Technology, if an end in itself, becomes just a game, but it is an extraordinarily powerful tool when used to achieve certain objectives.
On the other hand, I am sure that for the management of complex assets, which include real assets and shareholdings, and which include "delicate" aspects such as taxation or inheritance, the human touch and the relationship of trust can never be replaced by a process automatic. Not even from a sophisticated system like Watson, IBM's cognitive computing system which has high ambitions in the financial field.
Wealth management houses that will be able to combine the prestige of the brand and the professionalism of their consultants with elements such as speed in analyzing information and the superior analytical efficiency of online platforms will not only win over tomorrow's customers, but will certainly be able to increase their profits and their market shares today.
