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Robo-advice is Less Disruptive than You’ve Been Told

Since the Fintech industry started to take off a couple of years ago, there’s been a lot of discussion about how disruptive these new types of businesses are. Headlines have been filled with this idea of a new generation of companies that are defying the status quo and reshaping financial services. But while the innovation that Fintech companies bring to the industry is very real, these companies are much less disruptive than what you’ve been told.

The narrative that supports this concept usually confronts Fintech companies against the incumbents, much like the story of David vs Goliath. But the truth is that, by leveraging technology, a lot of fintech firms today are not really disrupting existing industries. Instead, they are filling gaps among the population who have typically been underserviced by the traditional service providers. In other words, they are expanding the industry.

This is the case for robo-advice, which has been both loved and criticised since its first appearance in Asia Pacific. The most recurrent argument against it is that an online and automated service can never replace a human adviser.

But this point of view ignores that robo-advice is, in fact, servicing a segment of people who don’t have access to in-person, high-quality advisory services because they don’t have the financial assets to justify the cost. We call this the ‘mass affluent’ market segment.

Until now, financial institutions in Asia Pacific have struggled to provide a low-cost, low-touch advice model to this customer segment. But thanks to digital wealth management technology, provided by fintech firms like Quantifeed, financial institutions in the region can now tap into this additional customer base, which has traditionally been beyond their reach. And this is a clear example of how Fintech firms and traditional financial services institutions are actually working together.

The good news for consumers is that although scalable, an automated service doesn’t mean one size fits all. Today’s technology enables digital advice to be personalised and engaging.

Digital services are driven by demand

Besides the mass affluent segment, there’s also another layer of customers who are now being serviced by robo-advice solutions. Customers defined more by attitudes than by the size of their portfolios. These are customers who plainly prefer not to go to a bricks-and-mortar office to receive a service. Consumers increasingly want to get all their services online including their wealth management.

It’s clear that the wealth management industry is catching up to the broader trend of digitisation, which has already transformed other industries. Customers now feel that if they can’t be serviced online, anytime, anywhere and on any device, then they are not being serviced properly.

It’s important to remember that robo-advice has developed in response to demand. And as the middle class is quickly moving up the scale of wealth in the region, this demand will only grow with time.

From the supply side, wealth management companies today have much to gain by adding robo-advice to their existing offering. A low-cost and highly scalable solution can help them to service an important segment of customers, who at one point in their lives may also reach the critical size to be serviced in person – if physical offices continue to exist, of course.

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