Robo advisory is the new buzzword in the financial advisory profession. According to an Infosys white paper ‘Increasing the efficiency and effectiveness of Financial Advice with Robo-Advisors’ this channel will grow at a healthy pace in the next four years.
In fact, the company has found that globally, robo advisers had assets under advisory of US$19billion in 2014 which is set to increase to US$2.2 trillion by 2020. This translates to a CAGR of 120%.
The company has attributed this growth to low costs of advisory fee. “Investors gain advice at much cheaper costs than the fees charged by human advisors. For instance, compared to an average 100 basis points charged by a human financial advisor, a robo-adviser cost just an average 30 basis points of AUM.”
The white paper says that robo advisers have the potential to disrupt the existing wealth management setup, which is dominated by human-only distribution channels.
The paper suggests that hybrid advisory model where human advisers and robo advisers work together is the way forward. “In 2014, robo-advisors were perceived as an outright threat to their human counterparts. However, 2015 has indicated that robo-and human advisers can co-exist. In fact, a hybrid route seems to be the way forward where a robo-advisor complements a human adviser in giving advice. This can provide numerous benefits: faster AUM growth, especially net inflows, newer opportunities in upcoming market segments comprising millennials, better empowerment of human financial advisors with time to think innovatively, and more opportunities to cross-sell high-margin advice.”
