Will there be oligopoly in the robo-advice industry?

Obligopoly in the robo advice industry

I have come across this question few times. Below is my response.

Yes, in the medium-term (around next six years) in each market, there will be an oligopoly in the robo-advisor / automated investment manager (AIM) industry.

AIMs should be prepared for the long haul to generate profits. It is being discussed that an automated investment firm in the US should have at least US$30 billion under management to become cash-flow positive (assuming no further investment in new product development, and with most of the R&D spend going towards the maintenance of the existing product).

So, in every geographical market, only those firms that get to a considerable scale will have a viable business in the long run.

In coming years, many existing asset management companies, and wealth management divisions in various banks will roll out their own versions of automated investment management service. Each of them will find their captive audience, though I doubt these initiatives will become very big (in spite of the distribution strength of these traditional firms) and hence turn out to be profitable initiatives.

Each geographical area will be dominated by few players who continually invest over many years to build a great product that is specific to the needs of the clients of that region. And I doubt that there will be a monopoly in this industry.

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