DIGITAL WEALTH MANAGEMENT: Leading robo-advisors have held onto consumer appetite amid the pandemic — here's what incumbents can learn from them to maintain their grasp on a $43 trillion market

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Although they only hold a fraction of the more than $43 trillion in investable assets under management (AUM) in North America, digital wealth management adoption is set to grow in the future — presenting an opportunity for fintechs and incumbents alike.

Digital wealth managers, also called robo-advisors, came into existence after the financial crisis in 2008, when fintechs aimed to simplify and democratize wealth management services. They use technology such as AI algorithms and machine learning to manage users' assets, while often relying on a hybrid model including human advice to enhance the customer relationship.

Insider Intelligence estimates that just around $330 billion was invested in robo-advisors in North America in 2019. However, we expect that number to increase significantly over the next few years to reach $830 billion by 2024 — presenting an opportunity to fintechs and incumbents already in the space, as well as financial institutions (FIs) that want to get involved with digital wealth management. 

Offering digital wealth management services allows players to make their operations more efficient and offer users a broader suite of services, as customers are increasingly expecting digital and automated services from their wealth managers. Additionally, it can help FIs lure in younger demographics that can't yet afford conventional wealth management, and later graduate them to more premium offerings, as they build their wealth. At the same time, digital wealth managers are facing their first economic downturn amid the coronavirus pandemic, which could impact the sustainability of their businesses moving forward if they don't adjust their services.

In The Digital Wealth Mangement Report, Insider Intelligence explains what the current digital wealth management market looks like, what makes the segment worthwhile for incumbents, and how they can find success in the space. We profile the four biggest digital wealth managers in North America in detail to provide insight into their onboarding process, portfolio management, and pricing, as well as how they've been affected by the pandemic and what they're doing to accommodate changing customer needs.

Our outreach process involved exclusive interviews across three providers in May 2020, while Personal Capital's profile is based on desk research and email conversations with the company due to interviewee unavailability. Additionally, we discuss why more incumbents should offer robo-advisory services, and define a digital maturity model for robo-advisors to showcase important features and capabilities that incumbents should take note of to find success.

The companies mentioned in the report include: Acorns, Betterment, BlackRock, Blooom, Charles Schwab, Ellevest, FutureAdvisor, Invessence, InvestCloud, M1 Finance, Personal Capital, RobustWealth, TD Ameritrade, Vanguard, Wealthfront, Wealthsimple

 

Here are some key takeaways from the report:

  • Although digital wealth managers only hold a fraction of investable AUM in North America, robo-advisor adoption is set to grow in the future — presenting an opportunity for fintechs and incumbents alike.
  • While some incumbent FIs already offer digital wealth management services, not all have gotten in on the trend, despite its many benefits — and of those that have, not all have found success.
  • The pandemic represents a potential threat to digital wealth managers, but there are ways to navigate the crisis and support their customers. For that reason, digital wealth management still represents an attractive opportunity for incumbents looking to enter the space.
  • Betterment, Wealthfront, Wealthsimple, and Personal Capital all rely heavily on technology like algorithms to build portfolios for customers and support their wealth management experience, which helps them to offer their services at a lower cost when compared with conventional offerings.

In full, the report:

  • Outlines the benefits of launching a digital wealth management offering
  • Details the Digital Wealth Management Maturity Model used to assess the progress that players are making in the space.
  • Spotlights the four biggest fintech digital wealth managers in North America and what they offer.
  • Highlights how technology is being used across the services, and how this impacts pricing.
  • Discusses how these players have been impacted by the coronavirus crisis

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