The robo-advisor market in the United States is expected to grow to US$489 billion in assets under management by 2020, according to a new report from Boston-based analytics firm Cerulli Associates.
The entrance of large “retail direct” firms will be one of the major drivers of growth for digital advice, coupled with increasing demand from investors, particularly so-called “millennials”, the report says. However, robo-advisors should also target older generations, the report notes, as 39% of Gen-Xers and 29% of Baby Boomers say they are willing to work with an online-only advisor. As well, members of these generations have more money than millennials, the report highlights.
More than 101 million U.S. households have less than US$250,000 of investible assets, the report says, and, approximately 76 million households have less than US$50,000 in investible assets. “Retail direct firms and digital advisors have an opportunity to address these largely forgotten mass and middle-market consumers by creating scalable, online advice solutions,” the report says.
“The compelling value proposition of digital advice providers, who offer low-minimum, low-cost portfolios, coupled with consumers’ expanding interest in passive investing will fuel this growth,” says Tom O’Shea, associate director at Cerulli. “In addition, we anticipate that most, if not all, retail direct firms will have a digital advice offering within the next three years, and traditional advisors will also launch digital offerings for lower-balance investor accounts.”
The expected rise of robo-advice doesn’t spell the end of human interaction, the report stresses. “Many of the top digital advisors considered to be ‘robos’ augment their delivery of advice with access to humans through a toll-free phone number and chat. With retail direct firms adding digital advice solutions, and digital advisors using service representatives to support online advice, the two channels are converging,’ says O’Shea. “Both types of providers are moving toward a model that combines online advice with human support.”
“While some consumers may feel comfortable receiving all of their advice digitally, never interacting with a person, this is a small segment of the overall population. Most consumers want to know that they can reach out to a person to solve a problem with their finances should the need arise,” O’Shea adds.