Robo-advisory – More than Just a Fad

Charles Schwab may have made the biggest splash amongst wealth managers last year. It launched its robo-advisory platform, known as “Intelligent Portfolios,” in March, and only six months later the program had grown to hold $4.1 billion in assets. This figure represents 1.54 percent of Charles Schwab’s $266 billion wealth management business.

Given the success of Charles Schwab’s program, we began to wonder what the robo-advisory space would look like if some of the largest wealth managers had jumped on board when Charles Schwab did. The three largest wealth managers – UBS, Morgan Stanley and Bank of America Merrill Lynch –each hovered around $2 trillion in assets at the end of 2014. If these firms had launched their own robo-advisory platforms in March 2015 and experienced the same level of success, then each of them would’ve had a robo-advisory business of roughly $31 billion in assets by the close of third quarter 2015.

Of course, this is all speculation backed by considerable assumptions about the potential for growth. However, given that all current robo-advisors manage a total of just over $20 billion in assets, it’s remarkable to imagine that the top three wealth managers could add almost $100 billion in six months simply by converting 1.5 percent of their wealth assets to robo-advised assets. This potential may be too steep for traditional wealth managers to ignore for much longer.

Given the growth opportunity it presents, why are wealth managers not fighting each other to be the first to launch a comprehensive robo-advisory solution?

Although many banks are dipping their proverbial toes in the robo-advisory water, they must overcome significant hurdles before the reward justifies the risk. Over the coming weeks, we will investigate in more detail some of the challenges robo-advisory presents and potential solutions, including the market size and segment opportunities, how best practices can define the user experience and how banks can reduce implementation complexity. The major risks in robo-advisory revolve around the decision of whether to build a unique platform from scratch, to acquire a white label solution, or to partner with a provider, as each option has its own implications in terms of finances and timing. Also, firms face the risk of being too early to the robo-advisory market, resulting in other firms coming out with much improved platforms shortly thereafter (e.g. Myspace), plus the opposite risk of missing the opportunity altogether. Check back often for updates.

Capco will present at the In|Vest conference in June 2016. Join us there for further discussion on robo-advisory and the future of the wealth business.


About the Authors

kapin vora

As Partner for the North American Wealth Management practice at Capco, Kapin is responsible for the market offerings with a keen focus on the development of digital initiatives that will enhance the capabilities of today’s progressive Wealth Managers.

A recognized thought-leader and expert in the Wealth Management sector, Kapin has obtained over 15 years’ experience while delivering large-scale, transformation initiatives for a variety of institutions. Whether working with boutique Wealth Managers, leading Investment Banks or Asset Management firms, he has led the implementation of clearing transformations and the adoption of digital innovations. With a particular expertise in operational strategy and planning, Kapin has been instrumental in helping these organizations successfully review and address their technology and outsourcing requirements.

tobias henry

tobias henry

Toby is a Managing Principal in the Wealth Management practice of Capco, where his area of expertise lies within digital and mobile transformations to improve customer experience and boost profitability. From his induction to the Financial Services world at HSBC, Toby has amassed a varied project portfolio covering proposition development, online trading platform design and delivery, in addition to business analysis for the Cards (Debit and Credit) and Mortgage products. He also holds ISEB Certifications in Modelling Business processes, Requirements Engineering, IT enabled business change and Business analysis essentials.


The content and opinions posted on this blog and any corresponding comments are the personal opinions of the original authors, not those of Capco.