Lee Robertson: Lessons from the US on robo-advice evolution


It has been an interesting few weeks in the robo-advice space, what with news that the regulator is letting possible new entrants play in a sandbox with less supervision and that one of the more respected US robo-advisers LearnVest has been sold to Northwestern Mutual. This latest acquisition follows on the heels of the purchase of Future Advisor by Blackrock in August.

If we are to believe the rhetoric about the direction of travel and regulatory impetus in this area, one might be forgiven for thinking that increasing attention on the robo-advice space is bad news for the full service adviser. This is an area that many of us are very interested in and, while I have touched upon it before, I thought it would be worth exploring some of the data and thinking coming out of Silicon Valley, which is leading the charge.

The robo-advice market has gained huge traction in the US – of that there is no doubt. However, although two of the largest “independent” players, Wealthfront and Betterment, both added more than $2.6bn in assets under management each last year, the entire robo-advice sector still accounts for only around 0.02 per cent of an estimated $33tn of personally invested assets in the country.

It is obviously still in its early years and the rate of asset attraction witnessed already demonstrates real potential over the medium to long term.

However, as we have seen this year, robo-advisers may become subject to acquisition by larger, more traditional players keen to enter or, dare I say it, disrupt this new market.

Where robo-advice has real scope, though, is to get into the rather underserved “millennials” space. In the US, this has been a key target area, as only 18 per cent of full service advisers offer advice to the demographic, despite an estimated growth in net worth of this group of between $2tn and $7tn by 2018.

Here in the UK, we have a somewhat similar demographic and we also have a vast group of people currently struggling to access advice, even if they feel they can trust it and are prepared to meet with an adviser.

Meanwhile, traditional advisers in the US are quickly adapting to the opportunities that new technology is bringing in terms of servicing those clients and continuing to retain those of higher value. But it is not just the usual baby boomer and generation X clients that they are seeking to serve better; they are also beginning to explore servicing younger clients with growing wealth too.

So the US is already seeing robo-advisers that have initially gone after younger clients seeking to move up the asset scale, while at the same time full service advisers are looking to enter the millennials arena. If similar trends continue, there is every likelihood that we will see this shift happen in the UK too.

Lee Robertson is chief executive of Investment Quorum.