The Rainbow After The Storm
From the ashes of the 2008 financial crisis came Robo-advisors pioneered by Betterment and Wealthfront. The future seemed promising. For instance, in 2016, KPMG projected Robo-advisor’s assets under management (AUM) to reach US$2.2 trillion by 2020. On the other hand, Deloitte projected it to reach US$16 trillion by 2025. Some have also argued that the projections are too optimistic – predicting instead that AUM will be less than US$1 trillion AUM as of 2019. Nonetheless, Robo-advisors are on the cusp of a revolution in wealth management.
As with any new product market adoption, there’s always a gestation period. This begs the question – when will exponential growth kick in? Our answer is that the era is now – with a new wave of tech-savvy, digitally dependent investors, Robo-advisors are set to grow in numbers and scale.
Upcoming Digital Investors
Born into the digital age, Millennials and Gen Z make up 63.5% of the world’s population as of 2019. As a generation that grew up with smartphones and social media, they possess an inseparable relationship with all things digital. Their tech-savvy nature and comfort with (and trust in) technology make Robo-investing a natural and preferred choice.
A study on affluent millennials investing behavior showed the stark difference in the adoption rate of Robo-advisors across the generations. Firstly, Millennials and Gen Z had a significantly higher adoption rate than the Baby Boomers.
Source: Spectrum Group
Secondly, within different groups of investors – the same pattern was observed.
- Amongst UHNW investors, 56% of the Millennial and Gen X respondents use Robo-advisors, compared to only 13% of Baby Boomers.
- Among Millionaires, the gap is much broader, with 62% of Millennials, 24% of Gen X, versus a low of 10% Baby Boomers using Robo-advisors.
Therefore, proving how Robo-investing is the preferred and go-to option for young, tech-savvy investors.
The Untapped Investors
A Snapshot of Investor Households in America report by Finra showcased demographic information of the uninvested. It found that more than 50% of households earned an income of more than US$50,000 but had no investment accounts at all. This is stark considering the assumption that people will start investing when they have “enough”. Why is this so?
In 2018, according to a Gallup Economy and Personal Finance Poll, the lack of knowledge and prohibitive management fees were two key reasons why many are deterred from the stock market. According to the same poll, only 37% of adults aged 35 and below owned any stocks. Conversely, the poll reminded us that a huge potential addressable audience of 63% of the population exists and is waiting for wealth managers to engage.
However, with Robo-advisors, this will no longer be the case. The lower barriers of entry and automation of portfolio management have democratized the investment arena for all. With more accessible access to investment opportunities, everyone can now participate in the game of wealth via institutional bonds, emerging market equities, and even exotic rare minerals ETFs.
Source: US Securities and Exchange Commission
New Wave of Emerging Investors
With these new waves of investors reaching financial adolescence, Robo-advisor offers them an easy path onto their investment journey. Experts predict that the industry is poised to reach US$1.4 trillion in assets this year. This equates to a 47% growth in AUM and 70.5 million new users.
With the proliferation of Robo-advisors (especially in the US), Robo-advisors have become popular around the globe. In 2020, UK is forecast to hit US$24 billion market value. Meanwhile, in Singapore and Hong Kong, strong growth figures (AUM increasing by 400%) over the past five years have been witnessed.
The low-cost advantage of Robo-advisors has allowed wealth management services to expand beyond traditional clients. Advisors are now able to engage younger, tech-savvy clients with a click of a button.
Adding further fuel to the growth of Robos, a survey found that over 50% of investors prefer making their investment decisions in the absence of a financial advisor.
Digital Wealth in 2023
According to Statista, the Robo-advisory industry will reach US$2.55 trillion with 147 million users by 2023 – 11 times the number in 2017. These figures are on the conservative side, as it only reflects active users of Robo-advisors and excludes wealth managers who manage their clients’ portfolios.
With the new generation of digital-native investors, the move to digitalization is inevitable. Robo-advisors have gone from a nice to have to a must-have for financial institutions worldwide.
With Bambu GO, a ready-to-go Robo-advisor solution, anyone can now have a seat at the wealth tech table.
At Bambu, we deploy white-labeled Robo-advisors that enable financial institutions at scale. With our smart portfolios algorithms and machine learning capabilities, your users can achieve their financial goals through a user-centric wealth journey with you. Schedule a demo to find out more.