New kid in town - Robo Advisor
There is a new kid in town: online automated investment platforms, or “Robo Advisors” as they are better known, which allows clients to manage their own investments. Robo-advisors are expected
to become a $2.2 trillion industry by 2020, up from around $20 billion till now. Although clearly a threat to established wealth managers, those banks which embrace the concept could also reap the benefits. Moreover, I admit it seems counterintuitive to imagine that something called artificial intelligence could actually make banking more personal, more human. But, it's true.
Robo Advisor at work
Robo-Advisors have the potential to improve the banking experience for everyone--provider and consumer.
- Work towards providing objective investment advice, free of vice and bias
- Avoid pain and loss if human error and greed were removed from finance
- Remove the weight of unmanageable debt with smarter risk assessment
- Help people make better decisions about their money and offer access to knowledge currently limited to high-earners and high-rollers
How does it work in practice? The initial recommendation of an investment plan is made easier by having you first complete an online session about your financial goals, timelines and risk tolerance. Based on what's learned from this session, the online advisor can show you -- in real time -- an investment plan that might be right for you. The final choices about your investments are made by you working with your advisor. The use of technology allows online advisors to do this in an efficient and scalable way in order to offer their services at a much lower price point than traditional advisors.
Invasion of Robo-Advisors
As part of the virtual workforce, the growth of Robo-advisers is fueled by changing client requirements as well as a shift to fee-based advice driven by regulation. MiFid II is expected to ban retrocession payments from 2017 in Europe, following the UK’s implementation of the retail distribution review (RDR) in 2013.
The big banks and other major players are taking notice. Asian institutions are at the forefront in offering digital capabilities, with a massive acceleration in recent initiatives. Singapore-based technology-driven DBS Bank launched an innovative cognitive computing solution, DBS Wealth Adviser
, supported by IBM Watson technology. The system aims at helping relationship managers provide tailored solutions to clients. It has the ability to read research and analyst reports, together with product desk recommendations and can match them with clients’ risk profile, appetite, investment objectives, past trade behaviour and preferences. In the wake of this, UBS
, Royal Bank of Scotland
and Santander UK
are developing special online sites to offer investment advice for all their customers, with one so-called robo-advisor. More and more companies are jumping on the Robo-advising bandwagon with new services and entrants, such as Betterment, WealthFront, Personal Capital, Future Advisor and SigFig.
While big banks have been slow to confront the challenge, banks should evaluate two key considerations. At first, how the robo-advice will be positioned—as a stand-alone offering, as part of a full-service financial advisory package, or as a hybrid of the two. Secondly, whether the needed technology and solutions will be developed in-house, through a partnership, or via the acquisition of an existing provider.
Digital banking sits right at the intersection of place and purpose. It serves a specific category of needs defined by convenience and accessibility. It reflects our 24/7 on-demand culture. If you need it, it's there. If your needs outpace the abilities of a Robo Advisor, there is service available for you, too. This is about choice - what could be more personal than that?
Meet the Author
works within Accenture’s Management Consulting Practice, Industry Financial Services, based out of the Netherlands specialised in payments and digital banking. Paul has worked with several financial institutions to assist them in defining their business and technology strategy and then playing a role executing and delivering against that strategy.
Accenture is a leading global professional services company, providing a broad range of services and solutions in strategy, consulting, digital, technology and operations. Accenture has extensive experience in payments, Everyday Banking, open APIs and digital banking strategies - and can help organizations to navigate the optimal route along this journey.