Consumer robo-advisor platforms offered by giants such as Vanguard, JPMorgan Chase & Co. (JPM) and Bank of America Merrill Lynch (BAC), are likely to see their growth explode five-fold to manage $1.26 trillion in the next few years. While robots currently account for a relatively small portion of the advisory industry, this will change drastically by 2023 as investors adapt to the new technology, according to consulting firm Aite Group, per a recent story in Barron’s.

Meteoric Growth for Consumer Robo Platforms

  • 2018: $257 billion
  • 2023: $1.26 trillion*

Source: Aite Group, Barrons; *Estimate

Forecasted 5-Year CAGR of 37%

Over the recent years, the emergence of financial technology, with digital investment management products at the center, have democratized access to financial tools and insights in an unprecedented way. The cost and time it now takes to invest is a fraction of what it was just a decade ago, giving way to micro-investing and automated services.

Aite Group expects this momentum in the digital financial advisory space to continue, forecasting a five-year compound annual growth rate of 37%. The research firm’s recent report pegged the market at $257 billion in 2018. The way it moves towards a trillion dollar industry, according to Aite, will be driven largely by the means of established wealth management firms evolving to meet demand in an industry disrupted by new, smaller entrants.

“While startups have been in the limelight, much of this industry’s growth potential hinges on incumbent wealth management firms’ ability and willingness to cross-sell digital advice into an already established client base and to leverage their brand and distribution channels to gain net new digital assets,” wrote Alois Pirker, research director at Aite Group.

Changing Industry Dynamics

Product manufacturer Vanguard had the largest share of the robo-advice market at the end of 2018, per Barron’s, followed by discount and online brokerage Fidelity Investments and Charles Schwab Corp. (SCHW). Other big market players include private startups like Betterment and Wealthfront, as well as full-service firms like Morgan Stanley (MS) and UBS Wealth Management.

While finance giants Vanguard and Fidelity are driving robots platforms now, experts at Aite say that discount and online brokerages will take leadership in the digital wealth management industry in the coming years, thanks to their “already well-established, self-directed client base.”

In that future, the consulting firm expects product manufacturers to trail behind discount/online brokers, followed by full-service firms. The latter is expected to see the fastest growth of the group, at a whopping 64% CAGR through 2023, driven by a large migration of smaller traditional accounts to digital platforms. Startups will fall behind with the next largest share of the market.

Vanguard's Booming Hybrid Robo Service

Already, Vanguard’s four-year-old hybrid robo-advisory business, known as Personal Advisor Services, manages $130 billion in assets, per another Barron’s story. This compares to Betterment’s $17 billion in assets under management, demonstrating just how fast the legacy players are getting in the game and blowing past the market pioneers.

Vanguard is now reportedly weighing the possibility of offering financial advisors access to methodologies used by its consumer-facing hybrid-robo technology, per FinancialPlanning. Currently, rival platforms like Betterment and Schwab already offer their technology to advisors.

“We’re getting a lot of requests from [advisors] to perhaps use that technology with them, so we’re in the process of working on that,” said Tom Rampulla, head of Vanguard’s Financial Advisor Services division. “We’ll be rolling that out at some point to give [advisors] the ability to use technology that has been proven to help with their business – different types of software to do their business and make them scalable.”

Looking Ahead

Whoever ultimately takes the lead in the years to come, there’s no doubt that the robo movement is going to continue to shake up the industry and forever change the landscape of wealth management services. As time goes on, robos will be able to compile real performance histories, offering a valuable piece of data as options for digital financial solutions multiply.