Disastrous 2008, the year of financial crisis is also famous for the financial revolution which is sweeping the world today. It is the year that gave birth to the Robo-Advisors; the new breed of wealth managers that emerged to redefine the US$67 trillion wealth management industry. Backed by powerful algorithms they provide rapid automated investment solutions based on risk appetite.
The investment industry is flooded with news of top investment management firms shutting down loss-making businesses ever since 2008. Words like restructuring, relocation, lay-off, strategic reviews still continue to haunt the industry. The deteriorating capability of asset managers to outperform major indices has further fueled investors to shift towards passive investment strategies such as ETF. In fact, investors have pulled $340bn from actively managed funds in the US last year and poured in $505bn into passive equivalents.
Robo-Advisors currently manage around $50bn of AuM, and as per A.T. Kearney, a consulting firm, AuM is estimated to explode by 68% annually to about $2.2 trillion by 2020. Gone are the days when stalwarts used to debate whether Robo-Advisors are a threat to the traditional financial advisors. We are at the juncture where Banks, Asset Management Firms, Financial Advisors and Non-financial firms have started embracing the technology to provide efficient investment services.
Robo-Advisors have now successfully emerged as a silver lining to the stressed Asset Management Industry and for the financial advisors. Still there exists few critical questions – How Robos can outperform actively managed long-term investment funds? Will the development in neural research and A.I. enable the Robos to work in isolation? Or the bonding that now exists between a financial advisor and the Robo continue in future as well? In this case, it is not the time, but technological advancement in A.I. that will dictate the future of Asset Management Industry.
- Rohith Thatchan, Financial Analyst (HK) at Bambu
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