MyPrivateBanking Blog
Daily Comments on the World of Wealth Management

Posts Tagged ‘automated investing’

The self-driving car is here - but what about self-driving wealth management?

Wednesday, June 3rd, 2015

Today I read that Audi will offer the new version of its A8 flagship model in 2016 with „piloted driving features”. Essentially the car will drive itself under certain circumstances, namely in traffic congestions on the highway. Google Cars have driven more than 1 million kilometers on public roads so far (with only a few minor accidents). It will be only a matter of time until auto-piloted cars will be available on the roads for everyday use. The industry is heavily pushing for a change of traffic laws and it seems that legislators will open up the roads in the near future. The benefits of self-driving cars are clear: fewer accidents, freeing up the driver to attend to other things while riding with her car and overall much smoother traffic and fewer traffic jams due to intelligent routing.

It appears to me that the wealth management industry is today at a similar junction and could push for the auto-piloted investor. But the industry leaders are more skeptical and not quite open to change - just the opposite of the car industry. The products are here - just think ETFs and passive, index-based investing. The technology has been developed: robo-advisors stand ready to help consumers get their investments right. The benefits are clear: Computers are much better investors than human beings.  Passive investing beats active investing in more than 80% of the cases. Algorithms have a much better appreciation of risk and return in financial markets than most private investors (and - I have to add - many professional wealth advisors, too).

But yet we see little enthusiasm in the global banking industry for automated, self-driving investments. The overwhelming majority of global banks leaves it to start-ups like WealthFront or Betterment to bring automated investing to the masses. A notable exception is the brokerage firm Schwab with its Intelligent Portfolio offer and a few online brokers.

It may be the case that banks and wealth managers are fearing that robo-advisors will put pressure on the fees for advisory services. But it should be clear to every industry participant that just as sure as self-driving cars will soon become a mass market, automated investing will be a success story in the financial industry. Why leave it to the start-ups and technology companies?

 

Are Robo-Advisors only for simple investment strategies?

Friday, October 17th, 2014

Over and over we keep hearing that robo-advisors are really only capable to develop simple investment strategies mostly based on simple products like index funds. For example, today Forbes carries a story that argues along these lines:

„While innovative and cutting-edge, most of today’s digitally-based offerings are still restricted to the discrete areas of basic planning and investing. People that want a more comprehensive wealth management relationship will need a broader solution, the kind that has been perfected by seasoned wealth advisory professionals.”

Well. We beg to disagree. Forbes maybe right that today’s offerings are relatively simple and restricted to basic planning and investing. But there is no doubt that software and relatively basic artificial intelligence will soon be able to tackle more complex questions.  Private banks and conventional wealth managers should not rest on the assumption that high-net worth clients and their more complex financial needs cannot be supported and advised by algorithms. Computers are able to solve complex and relatively unstructured problems in such diverse areas as diagnosing serious health conditions or advising customers on buying perfect gifts. Partly this is based on big data analysis, partly on very smart algorithms. No doubt that this kind of software will at some point soon be able to solve tax problems or estate planning. Don’t underestimate the speed of innovation. Of course, there still will be a role for humans in the advisory industry. But it will change from subject expert to human coach or therapist as many clients prefer interaction with humans rather than machines.

Check out our new report on robo-advisors for an in depth look how this industry will develop and how this brings new opportunities for conventional wealth managers.

 

Wealth Managers: Don’t be complacent about Robo-Advisors

Wednesday, September 17th, 2014

MyPrivateBanking Research has just published our first report on the new class of ‘robo-advisors’ that have joined the wealth management industry recently. Starting in the United States and now appearing in Europe, Canada and Australia, robo-advisors have become instantly controversial with differing prophesies of the part they’ll play in wealth management in the next few years.

In our report we seek to puncture some of the (second-hand) misconceptions about robo-advising. For example, robo-advisor firms are all about technology, certainly, but the first wave of robo-advisors are not yet as robo as can be; there’s more to come in terms of deployment of artificial intelligence and mobile technology, to name just two areas for future progress. Nor are robo-advisors homogenous pure passive index-trackers; among them there’s considerable variety when it comes to investment strategies – though it is true to say that many of them use passive ETFs as their main investment vehicles.

At the same time MyPrivateBanking believes that wealth managers are in danger of becoming dangerously complacent about the robo-advisor phenomenon. Industry practitioners and commentators may think that robo-advisors compare unfavorably with what’s on offer from conventional wealth management businesses but to do so is to place too much faith in the status quo. In particular, relying on face-to-face client meetings as an economic moat to defend one’s client base seems a flawed strategy.

In the face of the massive short-fall in the availability of investment advice for the mass-affluent market, the robo-advisor model has what it takes to set this market segment on sustainable wealth acquisition pathways. The robo-advisors are staking their future success on the belief that today’s savers and investors are able to maintain a consistent approach without the hand-holding that has up until now been seen as necessary by the wealth management industry. The danger for conventional wealth managers is that the lean, efficient robo model will catch on among their HNWI clients. No one should be in any doubt that robo-advisors are very focused on client enrolment and their approach is scale-able both in terms of pure numbers and the size of individual client portfolios they can work with.

 
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