Will Canadians ever embrace the Robo Advisors in a meaningful way? While the growth rates are impressive the total assets under management is disappointing. The Robo option might be ‘the answer’ for the majority of Canadians but it has failed to attract considerable assets.
There is several billion dollars invested in the Canadian Robo Advisors. That sounds impressive. But that is less than one half of one percent of Canadian retail investment assets. Quite frankly, these digital wealth managers have not caught the attention of Canadians in a meaningful way.
I’ll have to admit that I am more than surprised. And I’m disappointed. It’s my opinion that the Canadian Robo Advisors are THE ANSWER for most Canadians who are trapped in high fee mutual funds.
Of course I am a ‘loud’ cheerleader of this investment option. I worked as an investment advisor for the digital wealth offering at Tangerine Investments. I left the job that I loved to start Cut The Crap Investing.
What’s going on?
Why have the Robo Advisors failed to attract considerable assets? For answers and insights I turned to Josh Book who operates Parameter Insights. Josh and his team are a leading provider of data analytics and insights for the wealth management industry. They consult to wealth management firms helping them modernize for the digital age.
I’ll now turn it over to Josh to provide his thoughts. I will return to wrap things up. Yes, I’ll get the last word. From Josh Book …
The term Robo Advisor – not good.
The term Robo advice is an awful one. It’s confusing. It’s scary. Of course, it’s perfect for execs and media to latch on to because it’s short and draws out emotional reactions. Today where news cycles reach blinding speeds, media and people alike search for those “viral” moments that seem attached to content focused on “unicorn”, “wipeouts”, “wework”, “AI” “Fintech” and on and on it’s easy to lose the forest for the trees. And it’s no wonder that consumers have yet to flock to digital wealth advice firms.
Much has been made of the slow growth of these “robo” wealth advice platforms with ample commentary from execs on all sides – even some who are charged with a digital advice service. One such exec has even been quoted as stating “failure” for digitally led wealth advice platforms based on his firm’s lack of growth after an underwhelming launch approach and a mere 6 months in market!
Too much industry jargon.
The truth is there is a wide array of reasons why consumers and, more noteworthy, their assets are not yet “flowing” to digital wealth advice services. These digital first wealth managers offer less expensive and, in many ways, more elegant and user-friendly approaches to help people save and invest for important life stage landmarks. First and foremost is the wealth management landscape is incredibly crowded – how’s a person to choose? A plethora of firms cite jargon rich feature laden communications about their digital advice services. The trouble is that digital advice or “robo” has not succeeded in grasping meaningful levels of consumer attention.
Robo awareness is on the rise.
While consumer awareness of digital wealth advising is rising it’s still quite low in North America when you consider how familiar one must be to transact with an investment manager. It makes the approach taken by firms in the US such as Acorns and Stash, once considered gimmicky, look genius.
You can have a read of this Acorns review on investorjunkie.
Reports claim Acorns is adding over 100K new customers a month with frictionless savings options and a growing suite of financial service offers. While “AUM” may be lower than levels which grey haired wealth management execs might take notice these firms are actually changing the landscape. That shift will no doubt result in strong AUM growth over time.
A frictionless experience is required.
Consumers are getting ever more discerning about user experiences across categories and wealth is no doubt one that will not avoid the critical consumer eye. Only those firms that continue to innovate on how to engage consumers, (who we know have low financial literacy), to their experiences and then, once captive, provide frictionless ways to provide value will remain in the game.
The Robo barriers.
Some of our (Parameter Insights’) latest consumer data shows the change in barriers to engage with a digital wealth advice platform. This helps to shine a light on the slow movement of assets as well. Notwithstanding that, almost 95% of non-digital wealth advice users report having at least one barrier, but we are seeing some erosion. More importantly, the top five reasons reported by both Canadian and US consumers are telling. Of those that report to “not have enough money to contribute to investing” over 35% of them earn over $100K and/or have over $100K in investable assets.
“Not knowing enough about it” is not surprising to see given the awareness numbers. It is positive to see that this hurdle seems to be eroding the quickest. Which is to say, the times are changing.
This all opens a small window to why asset flows and customer acquisitions to digital wealth advice offers remains somewhat stagnant. The incumbent bank led offers have come to market with little fan-fare providing the easy “I told you so” many wealth execs have been hoping for. But this also is a key component to the story. Investigation and evaluation to how the incumbent led digital advice services have entered the market doesn’t exactly result in inspiration.
If you build it will they come?
If you build it doesn’t necessarily translate to they will come. Established financial services firms lack ingenuity in how they are defining and communicating the value proposition of a digital wealth advice firm which is not endearing consumer curiosity.
The lackluster user experience and product features of many of the offers don’t make it easy for those that have found ways to engage. It is all puzzling.
Will big players give up their big fees?
With established customer bases to leverage and sizable resources at their discretion you wonder if there is a meaningful appetite to transform the wealth business. It’s tough to look at strong revenues garnered from high fee businesses as being potentially cannibalized. Moreover, what happens when customers learn meaningfully about alternatives? Failure to act might not get you fired. Or, it may get you to that pension in a hurry. But it will, without question, put your wealth business in danger of being disrupted.
Take a look in that Robo mirror.
Firms need to take a hard look at their wealth businesses and seek opportunities to integrate across a wealth continuum. Digitally-led advice is a strong enabler to help facilitate across that spectrum. But firms also need to better understand consumers such that they can apply data driven strategies to garner attention and build more cohesive operations that supports a new wealth business model. This in turn will help customers of all wealth demographics in the ways that they wish to be served.
Change the conversation. Change the subject.
In execution this might mean avoiding any mention of wealth management, investing, diversified portfolios or other terms that require a visit to Investopedia.com. It must start by reaching people in their lives with ways to help make those lives better.
Thanks Josh for those incredible insights.
Yes, the mic has been handed back to me, Dale. Thanks so much to Josh Book. There’s much more to come on this subject. And most importantly – what can we do to give these ‘Robo’ advisors some jet packs? Josh has some wonderful research and sharp instincts in this area.
I can put on my branding and communications cap. I might come at this with a unique skill set having been an ad/communications guy, and I’ve talked to thousands of Canadian investors as an advisor. I pressed the right buttons to help many Canadians make that leap from high fee funds to lower-fee index-based portfolios. That was not a difficult task. It’s an easy decision for a Canadian investor with the right information in hand.
That’s why I’m surprised that the Robo’s have not taken over the investment world. But they will, sort of, eventually. One day, Canadians will embrace the Robo Advisors.
If you’re already leaning Robo, but don’t know where to turn, have a have a read of my Robo reviews. And feel free to send me a note. I’m happy to play air traffic controller to help you find the right Robo.
And as this post noted, awareness and understanding is a major barrier. Please share this post with those buttons on the left.
Thanks for reading, and thanks again to Josh.