Roboadvisors: Not as Hot as You Thought

Executive Summary

Roboadvisors first came into fashion following the Global Financial Crisis in 2008 and grew in popularity in the years to follow, leading to a plethora of offerings all over the world.

The term roboadvisor is defined as a software that provides automated financial advisory services, used by the end client of an investment firm on a self-directed basis. It then excludes the reliance on a human advisor.

Over time, this term has gradually come to cover other types of offerings, in particular advisor-led software, and hybrid approaches. Consequently, many roboadvisor market size estimates are inflated, as they include providers and offerings that should not be considered roboadvisors. This is the case for Personal Capital, Vanguard Personal Advisor and Charles Schwab Intelligent Portfolios, which all include access to human advisors.

Far from the purported figures citing trillions of dollars in assets under management (AUM) and hundreds of millions of users, Opimas estimates that, at the end of 2020, roboadvisors globally accounted for:

  • US$120 billion in AUM growing at 39% annually
  • Seven million users growing at 23% annually
  • Just under US$300 million in annual revenues

Despite this, there was significant activity in the roboadvisor market over the past decade, with many firms flocking to the market and an impressive number of mergers and acquisitions. However, due to high customer acquisition costs and low profitability, some vendors were forced to cease operating in this competitive market. Others have tried to shift or diversify their offering, notably by licensing their software to other investment firms in the hope of reaching breakeven faster.

While only a handful of roboadvisors have reached profitability, most of them have seen their AUM and clients grow quickly, especially over the past year.

Due to the abundance of vendors operating in the roboadvisor space, further consolidation is expected. Firms may also differentiate themselves by focusing on niche markets, such as sustainable investments.

Another development to look at is the integration of the roboadvisor into a broader wealth management platform, sometimes referred to as a roboadvisor-for-advisors. The use of roboadvisors behind-the-scenes by the advisors themselves may allow vendors to enlarge their client base and sources of revenue, and to circumvent the difficulty and cost of acquiring retail clients.

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