Key wealth markets are set to experience a surge of new business models and further industry consolidation akin to that of broker consolidators in the UK insurance market, as the independent financial advisor (IFA) workforce ages and new technology and capital is introduced, according to financial services research and insight firm Verdict Financial.
The company’s latest report states that one of the more optimistic predictions for the future involves the aging, predominantly baby boomer advisor base in places such as Australia, Canada, the UK and the US, and posits a novel exit strategy based on robo-advisors looking for new clients. This prediction is modeled on the broker consolidation trend in the UK, but substitutes cashed-up robo-advisors for the traditional broker-consolidator.
Robo-advisors are online wealth management services that provide automated, algorithm-based portfolio management without the need for human financial planners. With many offering largely exchange-traded fund (ETF)-based portfolios, their hallmark is very low fees. Robo-advisors were arguably the hottest fintech trend in wealth management in 2016, with dozens launched around the world.
Andrew Haslip, Verdict Financial’s Head of Content for Asia-Pacific, says that with their rock-bottom fee structures, independent robo-advisors only break even with pools of client assets well above industry averages, something even the most successful companies, such as Bettermint and Wealthfront, will struggle to achieve this year even in the US, the world’s largest wealth market.
Haslip explains: “Inflows to robo-advisors, while positive, have slowed and smaller robo-advisors or those in smaller markets such as Australia will remain well below the necessary volume based on current trends. For robo-advisors looking to scale up their client assets quickly, the wave of retiring advisors, along with the current low cost of capital, offers a once-in-a-lifetime opportunity, provided they pay for it.”
Verdict Financial believes high profile robo-advisors in 2017 could tap the market for the capital necessary to buy the client books of retiring financial advisors, whose generally affluent older customers tend not to have considered a robo-advisor.
Haslip adds: “The clients will benefit from cheaper ETF-based portfolios, while robo-advisors boost their client assets. So keep your eye out for the wealth industry’s newest trend, the robo-consolidator.”