«Robo-advisors» and wealth management professionals: competing or complementary?

Robo-advisors, complex algorithms for automated asset allocation

Why have we been hearing of “robots” in the field of banking, insurance and wealth management advisors for some time?  Having appeared in the US in the late 2000s, “robo-advisors” have recently entered the French asset and wealth management market (Advize, Yomoni Mary Quantier, Fundshop, WeSave, etc.).

Robo-advisors are digital tools based on complex algorithms and leverage of Big Data to provide investors with an automated asset allocation to manage portfolios on online platforms, which leads to them being sometimes called “robo-allocators”. The algorithms are configured according to criteria provided by the investor. Online multi-product life insurance is particularly concerned by the arrival of these new players, as are PEA and securities accounts.The different robo-advisors on the French market do not all offer the same management methods:

• advisory management: the investor manages his own portfolio. The platform provides them with automated asset allocation recommendations, and investment advice that they can decide to follow or not;
• discretionary management: everything is done for the investor. They fill out a questionnaire on the platform to establish their risk profile. According to the results, the platform recommends one of the existing profiles, along with its corresponding asset allocation. Then, they sign a management mandate. The platform opens one or more investment products (life insurance, PEA, securities account) and manages asset allocation. The saver is simply informed of the transactions.

Robo-advisors do not exclude human intervention. A more or less significant role is left to people. So, some robo-advisors use a management team to finalise the asset allocation proposals.Robo-advisors represent a new opportunity for insurers and professional wealth management

With some ten players representing less than 7,000 customers and under €100 million of assets under advisory or discretionary management, the French robo-advisors market remains relatively small. It is also significantly less dynamic than in the US, where the three main robo-advisors alone (Betterment, Wealthfront and Personal Capital) managed over $9 billion in assets at the end of April 2016 between them.While the “robot” side is considered attractive in the United States, this is less the case in France where human support is highly valued. Proof of this is the difficult growth in life insurance policies sold exclusively online, which only captures 3.2% of total gross inflows in life insurance.

Generating a risk profile and providing an asset allocation consistent with this profile, which a “robot” can do, is only part of the service. Nothing can replace the human touch when it comes to listening to the investor and conducting a thorough analysis of their wealth to build their precise wealth strategy together. The relationship of trust established with the advisor is essential in the investment decision.

The real opportunity: combining human expertise and robots

By combining humans and robots, robo-advisors may represent a growth opportunity for “traditional” financial institutions and insurers, particularly via their network of FIAs. Rather than seeing a threat, they can see opportunities in robo-advisors:

• rethinking the customer relationship through an enhanced digital journey that offers increasingly sophisticated services;
• acquiring new customers, addressing a population that had no access to investment advice previously.

At Crédit Agricole Assurances, Spirica is showing a particular interest in the FinTech sector and robo-advisors, and encouraging all these developments which represent the future of distribution, especially to young adults. Robo-advisors make it possible to offer customers an asset allocation that matches their appetite for risk and their objectives, and to ensure that the expected financial performance is maximized by smart tools.Contrary to common belief, there is therefore no real opposition between the traditional players in wealth management and robo-advisors, but rather a form of complementarity.

Sources: Etude Finance Innovation and Chappuis Halder & Co “Robo-Advisors: une nouvelle réalité dans la gestion d’actifs et de patrimoine” (July 2016) - JDN (6/27/16) - La Tribune de l'Assurance (01/09 / 16) - Les Echos (29/09/16)