Over 86% of German wealth managers working with high net worth (HNW) individuals believe that they will lose market share to automated investment services over the next two years, according to financial services research and insight firm Verdict Financial.
The company’s latest report states that, of developed markets, HNW clients in Germany show the greatest interest in automated advice platforms. In global terms, however, robo-advisors are still struggling to attract the assets of the wealthiest, and consequently grow their businesses and turn them profitable.
Bartosz Golba, Verdict Financial’s Senior Analyst covering Wealth Management, notes that the HNW segment’s uptake of digital platforms is lowest in markets where robo-advice has been present for a while, such as the UK and the US.
Golba explains: “The initial emergence of robo-advice platforms in these two highly developed regions was generally expected, and attracted the attention of young high-earners making their first investments. However, the wealthiest in mature economies have longstanding relationships with private bankers, and are not prone to switching to digital-only propositions.
“Robo-advisors in the US and the UK appeal mostly to HNW investors who are price-sensitive and self-direct a share of their portfolios to save on fees. German millionaires, however, are slightly different. The main factor attracting them to automated services is the appeal of a hassle-free means of rebalancing their portfolios.”
However, this single positive function will not prompt HNW individuals to transfer significant amounts of money to simple investment platforms provided by robo-advisors 1.0, so Verdict Financial forecasts the rise of more sophisticated digital propositions, not only in Germany.
Golba continues: “HNW individuals feel that their portfolios are complex and require advanced solutions that must be managed by humans. Indeed, the main challenge for every new entrant to the robo-advice space is client acquisition. Without HNW clients’ assets, digital platforms will struggle to become profitable in the long term, and their business models must therefore evolve to meet HNW individuals’ needs.
“Traditional wealth managers can actually help to bring robo-advice to the next level. With their huge budgets, incumbents can invest more in developing new technologies, and do this in partnership with robo-advice platforms provided by financial technology start-ups. In this way, we will see a growing number of deals between traditional players and challengers being signed across the globe.”