According to Morgan Stanley many robo-advice startups, who are surfing a long wave of disruption, could be heading for trouble themselves.
Global assets managed by «robos» could reach as much as $13 trillion by 2025, according to a group of equity analysts at Morgan Stanley (MS). That’s up from $100 billion as of December 2016.
A year ago however MS held a very different view on the robo challengers. In June last year MS said that «Robo advisers aren't going away any time soon, and the wealth management industry needs to make some changes if it wants to beat them and a host of other threats it is facing.» So what changed their minds?
Business news publication «Business Insider» reports that while robo pioneers Betterment, Wealthfront and Nutmeg have been growing fast, it’s actually the legacy firms such as Vanguard and Charles Schwab that will drive growth in the robo-advice space moving forward. Schwab already has close to $50 billion in robo assets, up from $4.2 billion in 2014.
It's About Reputation
MS thinks the incumbents are best positioned to win market share, and we see the fact that 70 percent of the companies they interviewed either just launched or were about to launch such offering as a step in such direction,” the bank said.
That’s because legacy firms have their brand names to back them up. A lot of investors, especially high-net-worth investors, are more comfortable giving their money to a well-established Wall Street firm than to a young startup from the Valley.
Consolidation Already Underway
Vanguard and Schwab have shown that network and brand are key to lower cost of acquisition, and allow for faster expansion, according to MS.
But this doesn’t mean the bank thinks robo-advice fintech firms have no future. MS believes a «handful» will survive, but most will have to partner up with other startups or get bought out.
This consolidation is already underway. TIAA, a New York-based financial services firm, bought the business-to-business robo-adviser MyVest in 2016. In the same year, Invesco, a legacy investment management firm, bought Atlanta-based robo-adviser Jemstep.
