This is a common question in the industry. Here’s my perspective.
Robo-advisors / automated investment managers (AIMs) will make business hard for traditional financial advisors with mediocre skills. However, traditional financial advisors with strong skills will survive and may thrive as they begin to focus more on providing financial advisory services that robo advisors do not provide.
Emergence of the hybrid model
In fact, some traditional advisors may leverage robo advisers by adopting a hybrid model to better serve clients. This hybrid approach 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 segments into which the market 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
A major target market for robo advisers is the “unadvised” segment — consumers who lack sufficient savings to enable them to access quality financial advice from a traditional advisor. So, the growth of AIMs 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 play 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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