Are Robo-Advisors Disrupting Wealth Management Industry?

We are living in an age which is witnessing fast growth of Artificial Intelligence, natural language processing and machine learning that are prompting a new breed of robo-advisors. In the view of all these recent developments it's clear that these are proving to be disruptive.

Things have changed drastically. With modern robo-advisor, wealth management is not the same that it used to be a few years back. With emergence of modern robo-advosory platforms, the investment services that were exclusively available to the premium and ultra rich investors are now available to a large crowd. However, the role of Human Advisors cannot be denied but there is definitely a change in that.

The main role is investment alignment that connotes to the investing services. Investment alignment demands the work of all stakeholders including accountants, financial advisors and other professionals to work in unison.

Financial advisors try to refrain from working with other parties in wealth management owing to several reasons. The first reason is obviously the wish to control the assets of investors. One party may feel the risk of losing the business if the other party is allowed. Moving on this thought, it's clear that a financial advisor may lose the business to an insurance agent that will prompt reapportioning of the investment to an insurance contract. It makes clear that the financial advisor will have reduced compensation due to having less money to control.

The problem with this reapportionment is that these interest-conflict parties are not working in a way that allows them to work in collaboration and help the client. Technology is being proved to be of big importance as it comes to rescue by solving the issue. Financial advisors also think that if they collaborate with other parties, it will take more time without giving them any compensation. But, these reasons do not hold solid grounds with the rise of algorithmic investing. And hence, the modern day financial advisors are left with no option but to consider creating value through other avenues in the view of robo-advisors controlling the financial advisory function of investing.

The modern generation of rewired investors trusts technology and prefers it over human advisors. Due to this reason the modern investors are opting for those wealth management firms that use a tech-based or robo advisor platform.

The new generation is well-informed when it comes to the power of algorithms in investing. They are very well aware of the benefits that come with integrated investment services. As per a 2017 report of Credit Suisse Research Institute, there has been an increase of 155% in the number of millionaires in last year, whereas the growth in the number of ultra-high net worth individuals has increased by 216%. The quick increase seems to be affecting the private banking industry by raising the bar for financial services.

The result is that many premium banks have raised the bar to a significant level that has resulted in a situation where a huge number of single digit millionaires are not being allowed for proper investment services. This presents an opportunity to forward-thinking investment advisors and wealth management firms.

Most of the high net-worth individuals prefer algorithmic investing services as they are now aware of the potential that comes along and attaches value to wealth management services. As per a study, the ultra rich and affluent use online investment tools more than any other type of investor.

Wealth managers and investment advisors who are targeting the affluent set of investors must be ready to get used to the robo advisor platforms using robo-technology if they want to lure this class of investors. If robo-technology is in place, it will be easier to see investment alignment in place too. The focus of investment advisors will be on other functions like investment alignment and client service then rather than on advisory services.

It's a well-known fact that the machines are able to offer better financial advisory services as compared to their human counter parts; the competitive advantage in wealth management is now on emotional intelligence, investment alignment and customer services. Financial advisors will have to be good enough on the parameters of emotional intelligence or else they will fail in playing their roles.