IT’S NOT (ONLY) ABOUT FEES, IT’S ABOUT ACCESS

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Over the past few years, a new form of advice has emerged with a new breed of wealth management firm starting to gather retail assets away from incumbent players.
These firms leverage client information and algorithms to develop automated portfolio allocation and investment recommendations tailored to the individual clients. They have been coined the term “robo-advisors,” and include firms like Betterment, Personal Capital, Wealthfront and MoneyFarm.

We see an huge opportunity in this sector and that’s why we supported MoneyFarm from the early paths in 2012 to the international expansion announced in November 2015.

Today, wealth management is only accessible to a limited number of financial-savvy people in the world due to high minimum balance and fees.
Emerging new technologies have a democratising power which enable more and more people to take advantage of algorithmic financial services.

The rise of robo advisors opens up wealth management for the mass-affluent and younger demographic, which traditional wealth managers view as uneconomical and are unwilling to pay high service charges.
• Mass-market: According to MyPrivateBanking (2014), there are some 32m Americans in the mass-affluent market with investible assets ranging from US$100k to US$1m, where only 20% can afford financial advice and the rest find the charges too high.
• Millennials (18-34 year olds), who will hold US$7tn in liquid assets by 2018E in the US alone and are set to inherit US$30-40tn from Baby Boomers in the coming decades.

A user-friendly interface, low minimum balance, low fees, efficiency and online tools open the access to a new market that could guarantee a growing AUM rate to these Fintech services.

From the robo-advisors perspective scale is vital.

We believe that most of the share gains though will come from unserved demand or ignored segments. It’s about access rather than (only) low fees.

This insights are confirmed by numbers: robo Advisors have been growing their AUM at a phenomenal speed in the last 6 quarters (See Fig.1) and is estimated to grow >100% CAGR over the next 4-5 years to over US$250bn. Furthermore, VC funding in Robo Advisors companies totaled over $750 million in last decade, with 2014 topping the leaderboard with $347 million.

In the long run, we believe that robo-advisers will ally with traditional wealth managers to scale their business, and as wealth managers adopt digital technology to better serve their clients.

 

 

Fig. 1 – AUM from robo-advisors can have >100% CAGR over the next 4-5 years to over US$250bn. 

robo1

 

Fig. 2 – VC funding in Robo Advisors companies totaled over $750 million in last decade, with 2014 topping the leaderboard with $ 347 million.

robo2

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