There’s no question that the core function of managing money in a heavily regulated industry is difficult and expensive. New companies with robo-advising technology will need to learn how to navigate the regulatory landscape, making it critical to collaborate with traditional wealth management firms.
From a bank’s perspective, robo-advising remains critical in terms of servicing customers. Banking’s familiarity with rules and regulations is unmatched and the personal touch one feels coming into an office creates trust that is irreplaceable. For companies with customers who are not comfortable with investing or navigating the financial markets, banks are a saving grace.
On the other hand, services delivery can still be through a mechanism other than humans. In the financial services industry, consider large broker-dealers like Vanguard and Fidelity, which carry people’s entire savings. These customers have never met an employee. Outside the industry, take Uber. Chances are you have never met the Uber driver who recently started working for the company, yet you are able to trust the operating model. Boundaries will be broken. The average retail investor today has the confidence to go straight to robo-advising. In due time, we’re likely to see that segment of the market increase.
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The future of robo-advising is very bright. In business, we tend to overestimate progress in the near term and underestimate the impact and direction things will take in the long term. As with most technology, slow adoption for a short period of time is not out of the ordinary. At some point there will be an S-curve and a point of no return.
It’s in the best interest of financial institutions to invest in these digital solutions and be there when it takes off. The key is to not miss the boat. Those who recognize the benefits and future of robo-advising first will lead the way.
The perfect scenario for the wealth management industry is this: in several years, we won’t necessarily be discussing the effect robo-advising is having on financial institutions. Instead, robo-advising will be a tool used by nearly everyone, from financial advisors in wealth management firms to the average at-home retail investor. The cost savings and better customer experience offered by robo-advising are a win-win for everyone.
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