Robo advisors these days are receiving a lot of institutional and retail interest than any other technology in fin-tech. The personal investment and financial portfolio planning is a need for a large segment of consumers. It also helps in managing large amounts of capital with reduced cost by replacing humans with software. The innovation in this field of investment technology of course is crowded with many startups coming up with new solutions and corporates trying to serve the shifting landscape. Inspite of the competition, there is immense potential down the road, as robo advising is going to become mainstream especially in this data driven world. This is the right time to enter the market. In this blog post lets discuss the challenges faced by robo advisors.
A major challenge faced by robo advising industry is scaling up to keep up with rapid growth. As we move ahead, trying to improve the technology to keep up with the increasing needs of the customers would become highly challenging.The assessment of the client behaviour will become challenging. Also funding along this period is very crucial. The second major challenge would be trying to compete with companies like Wells fargo, Charles Schwab which are venturing into digital advising. Companies like Charles Schwab which offer personal advising for no charge.They gain revenues from underlying assets in Schwab intelligent portfolios which in-turn gain revenues from Schwab ETF’s. They have the advantage of established customer base and power to control the market. They can offer the same services at a much lower price. At this stage it would be a good idea to tweak the business model to B2B. We can sell the existing algorithm to the corporates and make them our customers. This would be a good exit strategy for many startups in this field.
References:
https://www.bloomberg.com/news/articles/2015-06-18/robo-advisers-to-run-2-trillion-by-2020-ifthis-model-is-right
https://www.forbes.com/sites/falgunidesai/2016/07/31/the-great-fintech-robo-adviser-race/#472c6c8f4a6f
This is an interesting take on robo advising. I had not considered how the established customer has given certain banks and advising firms an advantage. I do think your idea of selling the service to other companies is a good idea. Both parties would benefit and the algorithm could be sold as a subscription model.