A Random Walk around the globe in search of robo-advisors

By Efi Pylarinou

I cant believe that May went by and I didn’t write anything about the robo space. Rumors are floating around that Wells Fargo is looking to acquire a robo advisor and Wealthfront comes to mind. The behind the scenes talk includes thoughts around “why not develop it in-house”. The robo advisor space is dominating headlines in the Investech world along with crowd-lending. The passive segment of automated investment advice is getting more attention because it is directly connected to millennials and it is easier to understand. Active or alpha generating robo-advisors have much more potential, in terms of depth of products and services, but is less mature at this stage and no unicorns have yet been established.

If you look take a look at the passive robo advisors and their geographic concentration clearly, the US is the most mature place and with the greater numbers of companies of robo-advisors. I count more than 30 names in the US, not yet one for each state but we are getting there. Why? Two main reasons related to the structural differences and maturity of investors-users:

  • 401k plans and the such (i.e. savings and retirement frameworks into financial investments through investor choices) are more than 40yrs old in the US and only 10yrs old in the UK, for example.
  • Overall, financial literacy rates are considerably higher in the US (i.e. more accustomed to investing in financial assets)

In Canada, I count a handful of robo-advisors; Wealth Bar, Wealth Simple,…

In Australia, I found only Stockspot and Quilla.

Asia whose online commerce culture is one of the fastest developing, is a huge opportunity to gather assets from the USD savings of Chinese retail investors. Robo retail services are shyly appearing supported by the huge success of the of Tian Hong Asset Management’s Zenglibao money market fund. In January this year, Hong Kong-based brokerage 8 Securities launched a robo adviser called 8Now!, targeting retail investors with a minimum $10,000 initial investment in Hong-Kong and Japan. The platform can invest in any ETF listed on the US stock exchange and has already $800mil AUM.

In South Korea the first online fund supermarket, Fund Online Korea, has been launched. Fundsupermart.com, the online unit trust distribution arm of iFast Financial, with operations in Singapore, Hong Kong, Malaysia and India, has been an early mover in the online distribution space.

Back to homeland Europe, where there are more than a handful but not yet a dozen in the UK. With Nutmeg and MoneyOnToast, just two random picks. Continental Europe has Germany and Switzerland with the most offer in the space.

Even though the first-generation robos are clearly clustered in the US, the second and third generations (more active not passive online investment strategies) are all over the place and in many cases their value is yet to be discovered.

And I close with a story since I didn’t start this post with one (anecdotal evidence). Did you know that Wealthfront started off as a facebook app to “play with the market”? Then it focused on online investing of SMAs (separately managed accounts); subsequently, it switched from active online investing to passive online investing. It’s CIO became Burton Malkiel, the famous author of a “A Random Walk Down Wall street”.

Passive robo advisors are really about low fees and “you cant beat the market” mentality,

which is very much in alignment with the efficient market theory that Burton Malkiel preaches in his famous book.

4 thoughts on “A Random Walk around the globe in search of robo-advisors

  1. KaChing was the original name for Wealthfront as I recall (around 2010). The Wealthfront pivot will be a HBR case study methinks.
    It does look like we are entering the consolidation phase in Robo Advisers ie exits via M&A.


  2. So true. Your distinctions of 3 generations is totally correct. Which versions are you seeing in India?
    The other big distinction is from the point of view of the end users; is it retail investors using robos or independent financial advisors.


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