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Half a dozen possibilities in automating asset management

By Efi Pylarinou

In an earlier post on Daily Fintech, titled “Fintechs chasing the Unadvised assets that are up for grabs” I addressed the issue of the current margins in the automated robo-advise business. The numbers reveal that there is actually a great potential to grab currently “unadvised assets” that are in the trillions.

However, the current fees charged (25bps for robo-advisors 1.0) are very low to support a standalone business. VCs are currently funding such growth but the business model is not sustainable. I totally agree with April Rudin, who shared her thoughts in an article titled “Ask Chuck? How About Ask Schwab’s C-3PO?” earlier this month: “It all boils down to AUM and whether the disruptors can gather billions of AUM to make the business meaningful”. In addition to the back of the envelope revenue calculations that show a low margin business, it also seems that the cost of customer acquisition is not negligible. The growth rates necessary to lead to a profitable business are in the neighborhood of hundreds of millions AUM increase per month.

Therefore, these businesses will have to:

Which business model or models will survive the work-in-progress in the space of automation in investment management: The standalone; the hand-in-hand; the hybrid services; the flat fee; or the freemium?

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