Click here to watch our latest Quarterly Market Update with Peter Watson.

What is the future for Robo Advisors?

What is the future for Robo Advisors?

March 4, 2020

Canada’s best known Robo Advisor’s founder was full of enthusiasm in 2017 at the opportunity to disrupt the mutual fund distribution business. This included financial advisors and the big five banks that distribute funds through their branch network.

Disruption then, and now, is the dream of many entrepreneurs who try and take innovative technology methods to make an established industry obsolete. 

Entrepreneurs are attempting to replicate a successful business ride-sharing model, in other business segments, capturing fame and fortune in the process.

There are several obstacles for Robo Advisors. The initial target market for this automated guidance and service is millennials. This tech savvy segment are early adopters, who do their financial work on their smartphones.

Unfortunately, charging low fees to a group that has minimal investment amounts does not come close to generating the revenue needed to be profitable. Fortunately, Robo Advisor firms are developing sophisticated technical processes that can add value to those that distribute funds.

Several Robo Advisors have expanded their revenue base to include advisors that are licensed to use their technology. Ironically, this is one of the very segments that Robo Advisors are trying to disrupt.

The fundament question is if more Canadians will eventually transition to a Robo Advisor? Do-it-yourself investors have had access to online investment portfolio management for years.

When it comes to personal finance, people seem to prefer interactions with human beings over technology.  

Another opportunity for Robo Advisors is to cross-sell clients to other products and services within their investment management portfolio. Allowing clients to balance their need for traditional financial services with human interactions against do-it-yourself financial advice using cutting-edge technology.

So, what does this mean for you and other individual investors? Plenty. The more companies competing for your business with this cutting-edge technology the better you will be served. 

Peter Watson is registered with Aligned Capital Partners Inc. (ACPI) to provide investment advice. Investment products are provided by ACPI. ACPI is a member of the Investment Industry Regulatory Organization of Canada. The opinions expressed are those of the author and not necessarily those of ACPI. Peter Watson provides wealth management services through Watson Investments.