Engaging with clients via a digital platform offers many benefits, which can be exemplified by the increase and visibility of electronic brokers such as Robinhood, which have stated goals to democratize financial services and provide access to non-traditional investment opportunities without costly fees. The app’s frenzy-like popularity is just one example of the shift in demand towards a quick and effective digital interface.
When we observe today’s market, it is quite evident that the technical expertise of a single human advisor no longer justifies the high price tag. The average fee at a full-service brokerage is $150 per transaction, whereas for most online brokers a fee is non-existen.t While such firms tout a premium price for research, education, and advice, the market has shown that today’s re-wired investor wants to stay in control, do things themselves, while leveraging multiple sources of advice rather than just one. The zero transaction fees, zero minimums, sophisticated cloud-based algorithmic trading, and easy-to-use interface is more appealing to the growing clientele. In the coming decade, the demographic shifts of an aging advisor population and the mass transfer of wealth from baby-boomers to younger generations will require major operational changes in order for incumbent firms to stay relevant. Today’s clientele likes to dedicate their resources towards receiving financial advice from more than one source, including from a “robot”, or computer algorithm.
Robo-Advisors
Robo-advisors operate with little reliance on human interaction between client and advisor. They deliver sophisticated financial advice by using Artificial Intelligence and Machine Learning to understand and predict investor preferences based on psychographic and demographic questions. The total valuation of robo-advisors was approximately $4.51 billion in 2019 and expected to grow more than 9 times that amount by 2027, demonstrating the increased willingness and trust clients have towards utilizing innovative advisory models.
Robo-advising companies such as Bettermenthave entered the market with low fees and the ability for clients to choose different investment portfolios to reach their individual goals. These Fintech companies allow users to choose from multiple portfolio strategies that align with their individual interests, including Innovative Technology, Social, and Climate Impact portfolios. In addition, companies such as Betterment provides tax management services and emergency fund portfolios for their clients upon request. The everyday investor is enabled to invest their money strategically, without the need of a minimum balance like traditional wealth management firms. The host of services broadens the target market and increase their user base. These tailored, yet democratized investments are effective because they offer personalized services that today’s clients expect, but on a much larger scale. This results in a highly profitable business model that provides for more operational efficiencies than the traditional Wealth Management model.
Mobile Money Management
At present, only 17% of Americans claim to use a financial advisor, according to a CNBC and Acorns'Invest In Your Savings Survey. In this same survey, 75%, across all age groups of Americans admit to managing their finances entirely on their own (See Figure 4).
