A lot has been written about robo advisors like betterment.com, wealthfront.com etc. (An overview of US robo advisors can be found here).
They have certainly puzzled (to avoid the word disrupt) bricks and mortar wealth managers and private banks. But at the end of the day due to the high grade of automation, they all look and work quite uniformly. This raises the question of whether there are differentiators in digital asset management besides pricing? Or in other words, what are the next building blocks in robo advising?
User Journey and Education
The user journey is missing. For people without investment background, an easy-to-understand and attractive introduction to the topic of serious investing will be needed to acquire clients. In addition, the beginning of the journey should be entertaining and stimulate the appetite for long term investing.
Investment Profile Determination
Further I see a more individualized approach in determining the client’s investment profile and strategy, based on intelligent questionnaires as well as AI based analysis of transaction history, social media and the like.
Enhanced Asset Allocations and Smart Beta
On the investment side one possible trend I see is that robo advisors will use enhanced asset allocations and try to achieve smart beta with add-ons like:
- Additional asset classes like commodities, real estate, private equity etc.
- Usage of smart beta ETFs instead of market capitalisation weighted indices per asset class
- Currency overlay to hedge currency risks. With this tactic you can gain access to markets outside your reference currency, but mitigate the involved currency risks at the same time
- Smart rebalancing algorithms instead of e.g. strict monthly rebalancing. Though most providers have already straightforward algorithms for rebalancing in place.
Performance and Risks Analysis
Last but not least understandable ex post performance and risks analysis and according client reporting, will be another field of differentiation. By doing regular risk and return reviews, the customer will be accompanied on his investing journey.