Digital Wealth Management
Current Situation: Robo Advisors vs. classic Wealth Management
Robo advisors were once seen as a radical application of purely online and algorithm-based wealth management, these Fintechs now are being taken much more seriously. Even banks with classic branch structures have built up Robo advisors, or go into collaboration, to protect the client sector with lower investment volumes from attack by the start-ups.
Even if the assets being managed by Robo advisors e.g. in Germany are still modest, a look at the USA shows us how the future will develop. Vanguard manages nearly 100 billion US dollars (2017) with a hybrid model i.e. a combination of Robo advice and video/telephone support. By comparison, the offers for private banking clients in Germany are mostly committed to a laborious and significantly more expensive combination of active management and personal advice.
These significant price differences will put the margins of banks with classic private banking methods under severe pressure in the foreseeable future, and will cause significant migrations of clients, and the beginnings of these migrations can be seen already. On top of this, the added value of an active management is being questioned to an increasing extent. This is expressed in the rapid growth of the ETF market. One must also be sceptical about the new inheritor generation continuing to pay for personal advice, considering that their digital affinity is highly developed. This potential for disruption affects not only the private banking sector, but all of the investors for whom standardised portfolio management makes economic sense, i.e. from 10 TEUR to at least 1 million EUR.
A Future Scenario
The disruption will force a radical change of perspective for wealth management, but this does not mean that the future will belong only to robo advisors. A sustainable and profitable business model can be a hybrid model, combining a standardised and extremely efficient portfolio management with individual advice (online and offline), and in this way achieving new added values for the clients.