December 9, 2016

Three challenges that show why you need to embrace robo advisory

Maria Kumle

Head of New Solutions, Tieto, PHCW

Robo advisory are disrupting wealth management. Business models will need to change. Here are the challenges that will shape wealth management going forward.

Wealth management is changing from being a pension plan to enabling a desired lifestyle over the entire life span. Three main challenges highlight the need for speed in rethinking business models. 

1. The Nordics are lagging behind: it is time to make a move

In markets such as UK, America and Australia, financial institutions have already embraced robo advisory tools. In China Robo Advisory is on the verge of becoming the standard for the growing middle class. Differences regarding population size, accumulations of wealth, pension systems, tax regimes and legislations can partly explain why the Nordics are lagging behind. However, the pension burden and the demographic developments together with the global economy and aftershocks of the financial crisis are putting stress on existing models. In addition, changing customer behavior, new earning patterns and rapid technological development highlights the need for us to make our move.

2. Legislations pressing margins

Various legislations have over the years pressed the margins and removed earning possibilities. They have also been aiming at creating transparency for investors and take away lock in effects and bad advice. Legislations are making it somewhat less attractive to be an advisor, as lawsuits have proven over the years. It has been costly to have human advisors giving faulty advice; the risk of multiplying this over a large scale using robots needs to be taken into consideration. So do the banks dare? Or do they dare not to?

3. New players on the field

The financial providers to the new generation of investors might not even be banks as we see them today, fintech providers and social media tools might more easily be perceived as convenient players to interact with, meaning that the more traditional players will need to seek new methods for communication and engagement. According to the Millenial disruption index, 33% of the new generation believes that they won’t need a bank at all and 73% would be more excited about a new offering in financial services from Google, Amazon, Apple, PayPal or Square than from their own nationwide bank. How can traditional players attract these clients?

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The question is no longer whether or not to take the step towards automation and robo support in the business process, the question is how? How fast? How far? In my next blog post, I will focus on how you can rethink your business process and capture the new opportunities

Read my previous blog Dawn of the second-generation robo guides.

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