This question arises frequently. Here’s my response.
Robo-advisors / automated investment managers (AIMs) will make things hard for traditional financial advisors with mediocre skills, and some of them will lose their jobs. However, traditional financial advisors with strong skills will survive and may thrive as they start to focus more on providing financial advisory services that are not provided by robo advisors.
Emergence of the hybrid model
In fact, some traditional advisors may leverage robo advisers to better serve their clients. This allows these traditional advisers to automate repeatable tasks while providing financial advice to smaller clients, freeing them up to focus on complex financial planning and building strong client relationships. This will result in better profit margins.
However, this might not be the case for the rest of the traditional advisers. The profit margins of a sizeable section among the rest will definitely take a hit.
New market segments
Robo advisers, hybrid advisers, and traditional human advisers are the three market segments that will stabilise.
The complexities of human emotion and the intricacies of comprehensive financial planning ensure that human expertise will remain a vital component of the advisory landscape for the foreseeable future.
Catering to the unadvised segment
Another aspect is that the biggest target market for most robo advisers is the “unadvised” segment — consumers who do not have sufficient savings that would enable them to access quality financial advice from a traditional advisor. So, the growth of robo advisors does not translate to the immediate replacement of traditional advisors. This is because most of the clients of AIMs were never the existing clients of traditional advisors. For now, robo advisers are playing an important role in increasing the market size of discretionary investment management.
Related information
Read the answers to the related questions:
- Which jobs in wealth management can’t be automated/ replaced by robots?
- What is the future for wealth management?
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