‘It’s not for the HNWs’. ‘Our clients would never touch it’. ‘A robot can’t serve the needs of the wealthiest clients’. ‘Our clients want a personal relationship’. Ah, the denials of many in the incumbent market. Actually, it is pure protectionism, fear and classic ‘let’s all be an Ostrich and stick our head in the sand’ behaviour in the face of change.
Did anyone ever seriously think that robo advice was not going to try and serve the richest of clients? I must say I always thought it was quite an obvious route for these businesses to take, especially given the cost and client acquisition hurdles required to develop the proposition further down the wealth ladder.
Before I get further into robos and the rich, I want to make 2 clear points:
- I don’t think robo advice is some form of utopia. It is just part of the future mosaic.
- I still think the best thing about the robo advisory theme is their relevance to the needs of the mass market
But since wealth management has traditionally been about serving the wealthier sections of our populations, affluent, HNW, UHNWS, etc., I want to highlight why it is clear to me (and players already moving in the industry) why it is relevant for the wealthiest clients (and the institutions that serve them too).
So here are three reasons why:
- Cost to the client: very simply, a robo-advisory relationship will be cheaper for the client than a traditional relationship due to the sometime huge differences in fees. That cost question only multiplies the wealthier the client. 1% at $10,000 is a very different cost to 1% at $10 million.
- Value to the client: does the client really get value from the all-in fees they are charged? Really? I struggle to accept the argument that the value given in the traditional, more expensive model, justifies the much larger fee. Also, is the product mix on offer for the higher fee that much better? The answer is mostly no. It just costs more.
- Choice for the client: we are moving to a world where the client will increasingly dictate what they want, how they want it and how they want to pay for it. We’re already seeing free robo tools and vastly cheaper offerings from incumbents and new entrants. Robo advisors give clients, of all wealth levels, the option of a cheaper service (which does not necessarily equate to a poorer service. Far from it. Just a different one). Clients want choice and it will be for them to choose what they want.
And let’s not forget that cost of production for the wealth manager is also too high. A more automated offering, once it has scale, has clear benefits for them too.
I know, as I stated, robo advice is not a utopia. It is just part of the mix. But I do think it is a very clear move in the right direction for all types of potential clients including the core target market of the traditional wealth management sector, the wealthy. I am yet to hear an argument that clearly tells me otherwise. It will also open up new markets and, when tied to the general theme of digitalisation, the broader benefits to the wealth management industry will be significant.
#wealthischanging #wealthknowledge #wealthsolutions #wealthmustadapt #digitalwealth
