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. That brings up the question is it possible to differentiate besides the price in digital wealth management, or at least what will be the next building blocks to come up on the horizon.

Enhanced Asset Allocations and Smart Beta

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.

Investment Profile Determination

Further I see a more customized approach in determining the client’s investment profile and strategy, based on all data available through intelligent questionnaires as well as transaction history, social media and the like.

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.

What do you think?

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