2 years ago, the enthusiasm about Robo Advisor was at its peak. The initial hype was fueled by analyses predicting that the global market for Robo Advisors would be worth over $2 trillion by 2020, with a market share of 5% of all privately invested assets.But especially the European market for Robo Advisors is far behind these expectations.
As the industry portal Finanz-szene.dereported in the beginning of May 2019, the number of users per Robo Advisor Service is often below expectations. Cooperations between young Fintech companies and financial institutions were terminated and other sales channels moved back to the fore. At first glance, an interim assessment, at least for the German market, may turn out to be disappointing.
Why do (some) Robo Advisors fail?
Startups and financial institutions launched their digital offerings with great euphoria. Many of these applications are based on our technology. We would like to share the experiences we have made.
Some vendors have launched a Robo Advisor as a stand-alone offering. Without much integration into existing sales structures, a digital service was established that bundles ETFs with a significant surcharge for the service and which is delivered to the customer via marketing budget. Success often failed to materialize. In order to learn from these experiences in future projects, we have developed 7 blocks of questions, which we are discussing with our customers today.
1) Customer Strategy: Do you have a clearly defined target customer and an idea of how to reach him? The Customer Acquisition Costs (CAC) are very high if you try to reach a weakly defined target group. The question may arise whether there are sales multipliers, such as an existing consulting infrastructure, sales partners or a highly frequented website.
2) Customer Journey: Which problem of the customer do you solve? A Robo Advisor for wealth accumulation looks different than a Robo Advisor for retirement planning at a set age.
3) Investment Strategy: Do you offer access to special or alternative products such as private equity? Do you offer thematic investments, e.g. in platform economy or business software, or does your Robo Advisor offer a special algorithm that can be used, for example, to achieve pension targets better or promises good market timing for savings plans? Important: today, all Robo Advisors are constantly monitored by comparison portals and analysts.
4) Scalability: The word “Robo” always sounds very technical and fully automated. Anyone looking at the process costs of many Robo Advisors today knows that not all processes in interaction with depository banks, order processes and the Investment Office are always fully automated. The break-even of a Robo Advisor and its economic scalability also depends on the scalability of the cost ratio.
5) USP: What is your brand promise? Are you planning to achieve a better performance with active products or are you aiming for a broad risk diversification of your investment? Do you want to offer a highly individual investment that takes a holistic view of your customer’s assets or do you want to build a particularly cost-effective investment? How do you differentiate yourself from other Robo Advisors or pure ETF portfolios?
6) Pricing: Do you want to differentiate yourself with a particularly favorable pricing or do you try to reach another customer group via a fee-based model? A few years ago, almost every Robo Advisor cost between 1-1.25%. In recent years, price differences have increased sharply, driven by new providers.
7) Synergies: A very important factor, especially for banks. You can leverage your Robo Advisor by making those customers excited who you can no longer serve with “humanly offered” advice or asset management. It is also important whether you can leverage the technology in an existing asset management system. In the past oftentimes, the synergies with the financial institution itself saved the business case. Today, we are proposing to plan for these synergies from the outset.
With this infographic, we offer you a quick overview and would like to give you some thought-provoking impulses for every success factor. Once you have formulated an appropriate answer to each of these questions, which harmonizes with your digital business strategy, you can proceed with the implementation process of your Robo Advisor.
Check also our Hybrid Robo Advice solution with further suggestions and use cases.
We are at your disposal to work on your personal Robo Advisor strategy.
Any questions left? Contact us, our experts are happy to discuss your ideas!