November 2015, BOSTON. The latest research from global analytics firm Cerulli Associates projects that the digital advice market will grow to $489 billion assets under management by 2020.
“The compelling value proposition of digital advice providers (or Robo-Advisors), who offer low-minimum, low-cost portfolios, coupled with consumers’ expanding interest in passive investing will fuel this growth,” states 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.”
Large retail direct firms are now offering digital advisory services that have more assets than any of the start-ups that pioneered this product category. The entrance of large retail direct firms will be one of the major drivers of growth for digital advice. In the short time that retail direct firms have been offering digital advisory services, they have captured considerable marketshare.
“The idea that digital advisors provide portfolios without human interaction is inaccurate,” O’Shea explains. “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. Both types of providers are moving toward a model that combines online advice with human support.”
“To be successful, digital advisors will need to develop a strategy that incorporates the human element into their service model,” O’Shea continues. “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.”
Cerulli’s latest report, Retail Direct Firms and Digital Advice Providers 2015: Addressing Millennials, the Mass Market, and Robo Advice, focuses on products and services, including market sizing, and distribution opportunities within the traditional retail direct channel and digital advice market.