By George Baker White
Robo-advisors (investment management companies which automate part of the investment process) are a product of the FinTech wave. As an alternative to the traditional financial advisor or your bank, robo-advisors allow for novice investors to invest/save, at a cheaper rate than the human alternative.
Robo-advisors, such as Finanbest, require low portfolio minimums (only needing €3000 to open an account compared to the usual €100,000 at a bank.) Not only does it enable people with low disposable incomes to invest their savings, it allows them to see a return on their savings without losing their vital cash flow. At the same time, commissions are significantly lower, charging well under 1%. The most popular robo-advisor app in Europe, ETFMatic only charges 0.48% and they offer regular opportunities to be commission-free. Providing these low costs are key to the success of robo-advisors, paving a route into the investor world for those previously blocked out, with an easily accessible, 24/7, user-friendly interface via an app or website.
While this ease of use and set up may be a positive for many, it does limit your investment in terms of customisation. Stereotyping the sector slightly, the majority of robo-advisors ask you to do a survey, and based on these preferences, such as risk levels or your goals for your investment, you are assigned, most commonly, an index or Exchange Traded Fund (ETF). But there’s a degree of ‘one-size-fits-all’ from this. The inherent nature of robo-advisors, offering no human advice and support, can be limiting, especially when markets crash especially for people with higher wealth.
However, robo-advisory services are adjusting to this, offering a ‘hybrid’ service that gives the possibility to communicate with a specialist financial advisor when necessary. Many are adopting this form of service, and MyPrivateNetwork forecasts this form of robo-advisory to be dominant in the future.
The sector’s growth has mainly been seen in the United States, where it is set to grow to $7.000 billion in terms of assets invested by 2025. Betterment and Wealthfront have been strong exploiters of this wave, and big players are being attracted to this field, with BlackRock acquiring stakes in Scalable Capital, and less recently FutureAdvisor, and Aberdeen Asset Management with its investment into Parmenion.
However, it isn’t only in the US where there is huge growth and positive signs coming out of the robo-advisory sphere. Europe is thriving and showing similar growth rate potential to the US, with Spain showing strong indications of high growth in the coming years, while the UK and Germany are currently the principal ‘hubs’ in Europe. Although Spain has a small industry for robo-advisors at the moment (only having $150 million under management compared to Germany’s $3.5 billion), it is forecasted, according to Statista, to double in the next two years and reach $600 million by 2022.
While at a nascent stage in Spain, the forecasts seem very positive and the robo-advisor sector seems set to take the economy by storm in the coming years. Leading analyst Juniper Research predicts revenues from robo-advisory services will rise from $1.7 billion in 2017 to $25 billion by 2022.