The Rise of Robo-Advisors: How Banking and Wealth Management is Changing with Technology

The Rise of Robo-Advisors: How Banking and Wealth Management is Changing with Technology

webpalsThe Evolution Of Robo-Advisors

One of the byproducts of the 2008 financial crisis was the appearance of the first-ever robo-advisors. Ten years later, robotic wealth management solutions have become the norm and every day, leading companies are introducing robo-advisors into the fold as consulting tools for customers.

As the advisory market matures by incorporating sophisticated robo-advisors ready to cover a wide variety of customer needs, they have progressed far beyond the point of being simple tools, instead penetrating the very core of financial services.

Rethinking Finance & Banking

Robo-advisors have many of the qualities that today’s financial services customers require: transparency, low-priced accessibility, and web-based experiences. The all-in-one nature of this service poses a threat to banks, as it forces traditional institutions to reevaluate the design of their front-line services. The seismic shift in finance has led banks to take another look at the journey, which their customers take when they handle their money in 2018.

Understanding this change as a threat might be a bit narrow minded. Leveraging the benefits that this technology offers — lower cost for higher function — is a strategic direction that banks can take to offer customers traditional banking services such as loan, payment advice and automated mortgage investments.

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Sweeping Support

With a growing list of advantages, robo-advisors are quickly becoming a hot commodity, attracting industry players from a wide cross-section of financial establishments.

Wealthfront, a Silicon Valley-based automated investment management company with more than $10 billion under management is considering the addition of checking and savings accounts to its services, enabling its customers with faster, more convenient transactions collocated with their investments.

The widespread adoption of robo-advisors extends to Citizens Bank, an American bank with branches along the eastern seaboard.  The bank announced the introduction of a digital advice solution for its customers through SigFig, a leading wealth management technology provider. The entire push for the integration of robo-advising with traditional banking stemmed from the push to accommodate customers’ needs for on-demand banking and personalization.

This transition does not stop at banks — apps want to get in on the action as well. Micro-investing app Acorns, now offers its users a debit card, and its competitor Stash is debuting a banking app.

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Combining Robo-Advice With Banking

People want all of their investments and banking together in one place — half of the consumers prefer to keep their investments collocated with their primary banks — according to a report by Novantas. There are a few reasons that banks should do everything they can to make this combination work.

It’s all about “platformafication” — centralization is at the core of customer demands when it comes to finances. This is true of nearly every element of a consumer’s needs as the world is shifting to an on-demand economy. By entering the digital market banks are serving their customer’s most immediate needs. This is not to say that it’s a losing proposition for banks. Combining robo-advice with banking is one of the ultimate ways for banks to regulate clients’ free cash. This is critical to securing client relationships and can help banks maintain steady profits. It’s also an avenue to secure more customers and scale up operations. Robo-advisors enable banks to provide account support to customers on a greater scale than ever possible with only human interaction. Banks can reach thousands of customers before they reach the minimum asset requirement to be eligible for full-service advice, a lead gen goldmine.

With robo-advice expected to reach a staggering $1.5 trillion in assets by 2020 — the biggest segment of which will come from millennial investors — it is clear that this trend in financial services is no blip on the radar.

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The Prevailing Human Touch

Financial institutions are looking to find the perfect balance between human touch and algorithmic interactions. Betterment is a robo-advisory company that makes no bones about including the ‘human touch’ in their services.  This business ethos corresponds to the natural inclinations of millennials who grew up with personal technology.  According to a survey by MyPrivateBanking, richer millennials are willing to use robo-banking services so long as there’s some form of human interaction.

Personalization is key to robo-advising. A little goes a long way — companies that make efforts to personalize their services can expect an increase in sales and transactions, as well as increased customer loyalty and satisfaction.

As robo-advisors hit their tenth year in the financial sector, they have become multi-functional wealth management engines, operating on machine and deep learning, data mining, and language processing methods. These practices enable banking institutions to analyze customer data, offering personalized advice, for a fraction of current costs.

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2 Comments

  1. RoboAdvisor, whether in the USA or in Europe, are not yet profitable. Numerous statistics show that acquisition costs are still very high. So high that hardly any Robo Advisor has managed to reach the profit zone to date. In this respect, Robo Advisors are forced to exploit further sales opportunities. The combination of Robo-Advisor offers and classic bank services is obvious. However, such a combination should clearly focus on a purely economic rather than a technological interest.

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