Robo-advisers have challenged a report earlier this week which argued that current robo-advice firms will be overtaken by established finance or technology brands.
In its report, analysts at asset manager Bernstein said that the “Uberisation” of asset allocation could present a threat to new firms that have entered the automated advice market.
Bernstein believes that the assets run by robo-advisers will increase significantly – a bright future for the industry as a whole – but larger platforms may overtake the current robo-advisers, particularly given low barriers to entry in to the market.
The report reads: “The robo-advice approach looks to have a rosy future, though not necessarily the current robo-advisors themselves. Barriers to entry for the actual robo part are very low we think. So this may well be exploited by more established finance (or tech) brands with a broad distribution capability.”
In the report Bernstein also questioned how threatening robo-advice is for active managers, given that the current propositions are only allocated to passive managers.
Bernstein says there is no reason why active funds could not be included in the robo offering but they do not necessarily fit with the marketing message of “low fees and simple/transparent product”.
The report says: “The robo-advisers have an incentive to make sure that overall fees are kept low by minimising the fee paid for managing the underlying assets. The inclusion of active funds could well make sense though if, for example, they were offering idiosyncratic returns not accessible by the other passive offers.”
It adds: “The most immediate issue caused by the robo advisors is that in their current form they accelerate the already relentless shift to passive investments and thus put additional pressure on active fund fees. In addition, if active funds were to be included in the robo allocations in future, presumably there would be pressure for those active funds to have substantially lower fees to make them competitive.”
Incumbent robo-advice brands have hit back at the report however.
Scalable Capital managing director Adam French says: “Bernstein’s statement on the future of robo advice lacks a full understanding of how the industry has developed. While they’re absolutely right that standardised products based on buy-and-hold passive investment strategies will find it difficult to compete, they have not taken into account the innovation that is taking place with regards to the investment methodology itself – replacing a simple buy-and-hold strategy with advanced, technology-enabled strategies that were previously only available to institutional investors.”
eVestor chief executive Anthony Morrow calls the report “too general” and said that history did not support the idea that incumbents are automatic winners in new markets.
General executive manager for wealth at financial services technology Iress Mark Loosmore, however, notes that the “true power of robo is when working alongside other distribution or communication channels backed by either big brand names or existing strong relationships.”