I have come across this question multiple times. Below is my response.
Yes, in the medium term (around the next six years), there might be an oligopoly in each geographical market in the robo-advisor / automated investment management industry.
Robo advisors should be prepared for the long haul to generate profits. For example, it is being discussed that an automated investment firm in the US should have at least US$40 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. They will build the product on their own from scratch, will acquire an existing robo advice firm, or will partner with an existing robo advice firm. Each of the services launched by the incumbent financial institutions will cater to their existing captive audience, though we doubt these initiatives will become very big (in spite of the distribution strength of these traditional firms).
Each geographical area will be dominated by a few players who continually strive over many years to build a great product specific to the needs of the clients of that region. And I doubt that there will be a monopoly in this industry.
- Will robo advisors survive as independents or just as tools on bank websites?
- What is the future for wealth management?
- Is it too late for a new firm to enter the robo advice business?
- What’s going to happen to the robo-advisors the next time the market crashes?
- Regulatory changes that paved the way for robo advice in Australia
- What is robo advisor 2.0?
QuietGrowth has been publishing content in this blog or in other sections of the website. Contributors for this content may include the employees of QuietGrowth, or third-party firms, or third-party authors. Unless otherwise noted, such content does not necessarily represent the actual views or opinions of QuietGrowth or any of its employees, directors, or officers.
Any links provided in our website to other websites are for the purpose of convenience, or as required by any such other websites. Unless otherwise noted, this does not imply that QuietGrowth endorses, is affiliated, and/or promotes any information, or products or services of those websites. Please read the advice disclaimer section of the website too.