Automated advice platforms — known as robo advisers — are poised to expand their investments in ETFs over the next five years, boosting their assets to more than $800 billion, according to a report by PricewaterhouseCoopers.
It’s time for exchange-traded funds to start wooing the robots. But the asset management industry isn’t quite so sure.
Automated advice platforms — known as robo advisers — are poised to expand their investments in ETFs over the next five years, boosting their assets to more than $800 billion, according to a report by PricewaterhouseCoopers. Overall, digital advice is likely to grow to $1 trillion by 2020, a separate study by Aite Group showed.
Robos, which include independents such as Betterment and Wealthfront as well as platforms from the likes of Vanguard Group and Charles Schwab Corp., oversee about $75 billion. PwC’s prediction is based on growth rates from 2015 to 2016, while Aite used data submitted to regulators and interviews with large incumbents.
But many asset managers consider these projections optimistic, with more than 75 percent of those polled by PwC expecting robos to generate less than $100 billion for ETFs over the next five years.
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Asset managers are aware of the robo-adviser trend, but only in “a superficial manner, like much of the general public,” Aite senior analyst Javier Paz said in an interview.
Robos have found a natural partner in ETFs based on their shared emphasis on cost. Unlike a traditional adviser who might require hundreds of basis points a year to choose investments, robos use answers from a series of online questions and some sophisticated algorithms to provide the same service for little or no fee. This hands-off, cookie-cutter approach is cheap, and using low-cost ETFs to execute the strategy ensures that management fees won’t eat into the savings.
Many ETF issuers and other asset managers are, however, ill-prepared for this shift. About 55 percent of those surveyed by PwC see robos sending less than $50 billion into ETFs, with participants from the European and Asian markets the most cautious in their expectations.
That wariness will end up being their loss, according to PwC. Those who resist the shift to automated advice and other digital technologies risk endangering their business and missing a huge opportunity, the accounting and auditing firm said in its…