Although some clients still go to a private banker, others already manage their assets online. Robo-advisors and digital wealth-management already work in the Benelux.
“Robo-advisors will never work. Clients will always prefer a personal relationship with their advisor (1)”. This is what we used to hear from well-established traditional private bankers who may be blinded by the comfort of their position. Their awakening is brutal: robo-advisors and digital wealth-management already work! Although some clients, particulartly those born in the middle of the last century, still go to a private banker, others already manage their assets online. Wealth-management will most likely follow the same path as mainstream retail-banking, with clients spending less time visiting physical branches.
Experts of the German research company TechFluence (2) have recently published a mapping of robo-advice providers: they listed 64 digital wealth management companies. More than one third are in Germany, spread all over the country, with highest concentration in Frankfurt (8 companies). However, the epicenter of robo-advice in Europe is London with 15 registered companies. Berlin, Munich, Zurich and Paris account for 4 robo-advisors each. Some are competing with private banks while other strive to help incumbents to digitize their services.
The main companies listed in the Benelux are: Brussels’ MeDirect (3), a fully digital subsidiary of Malta’s Mediterranean Bank targeting the Belgian market; Brussels’ Easyvest (4), a Harvard spinoff that was one of the first to develop a robo-advisor; Luxembourg’s Investify (5), a recently founded start-up that just launched a revolutionary online advisory tool; Luxembourg’s Birdee Institutional (6), a subsidiary of the ground-breaking HEC-Universite de Liege spinoff Gambit Financial Solutions; and Amsterdam’s Pritle (7), an easy, cost-efficient and accessible wealth-management service that prepares its introduction across Europe.
In terms of assets under management, the 5 European players who crossed the €100m milestone are Feelcapital from Spain, Nutmeg from UK, Pritle from the Netherlands and CheBanca (Mediobanca group) and the startup Moneyfarm, the latter two both hailing from Italy. TechFluence experts said that they expect more players in Europe to cross the €100m mark soon. The low interest rates environment make it more difficult for private bankers to “hide” the high management fees, and thus benefit the low-cost robo-advice sector.
Compared to the overall number of private bankers, the overall number of robo-advisors is still extremely small. They currently struggle to collect assets and suffer from high customer acquisition costs. But robo-advice will soon become an accepted market standard for wealth management. They offer customized portfolio management with low investment minima, with much better yields and much lower costs than those offered by traditional private bankers. Digital wealth management companies are gradually building the trust and track record required to sell their funds at a large scale. In addition, robo-advisors usually benefit from large average investment sums as investors quickly understand the impact of management costs on financial performance.
The advantages of robo-advice in terms of quality of service for investors and cost-structure for providers are so convincing that we expect significant long term growth, especially as relatively new technologies such as AI and VR become available.