Automating Advice: How Online Firms Are Disrupting the Market for Online Advice

by William Trout, August 25, 2014
Industry Trends
North America

Abstract

The emergence of digital technology and a post-Baby Boomer generation of investors have unsettled the dynamics of the wealth management business. Traditional providers of financial advice must change the way they do business or face radical disruption.

In Automating Advice: How Online Firms Are Disrupting the Market for Online Advice, Celent examines the value proposition put forth by low-cost online providers of financial advice. The report explores the competitive threat these firms pose and suggests strategies by which traditional providers can respond.

Over the last five years, online firms have gained significant market traction, most notably in the domain of investments (where the fragmentation of traditional delivery models and the adoption of passive investing strategies have created fertile ground for disruption), but also in the areas of personal financial management (PFM) and financial planning.

Many traditional advice providers have responded to the threat by moving upmarket. Celent explains why this strategy that may offer only temporary respite, and suggests ways firms can abandon this defensive crouch and build on their inherent competitive advantages.

Celent also considers trends toward convergence taking place as PFM and investment management providers embrace financial planning, and what changing investor expectations mean for both online and real life advisors.

“Traditional advisors and the financial institutions that employ them must put aside legacy practices to deliver digitized advice and, ultimately, digital relationships. In short, they need to take a page out the book being written by the automated providers,” says William Trout, Senior Analyst with Celent’s Securities & Investments Group and author of the report.

Celent is a research and advisory firm dedicated to helping financial institutions formulate comprehensive business and technology strategies. Celent publishes reports identifying trends and best practices in financial services technology and conducts consulting engagements for financial institutions looking to use technology to enhance existing business processes or launch new business strategies. With a team of internationally based analysts, Celent is uniquely positioned to offer strategic advice and market insights on a global basis. Celent is a member of the Oliver Wyman Group, which is a wholly-owned operating unit of Marsh & McLennan Companies [NYSE: MMC].

Media Contacts

North America
Michele Pace
mpace@celent.com
Tel: +1 212 345 1366

Europe (London)
Chris Williams
cwilliams@celent.com
Tel: +44 (0)782 448 3336

Asia (Tokyo)
Yumi Nagaoka
ynagaoka@celent.com
Tel.: +81 3 3500 3023

Table of Contents

Executive Summary

1

Introduction

2

Key Drivers

5

 

The Disruptive Role of Data

6

 

Introducing the Millennials

6

The Segments

9

 

PFM: A Steppingstone to Financial Planning

9

 

Financial Planning

10

 

The Investment Managers

12

Outlook

15

 

Recommendations for Real Life Advisors

17

Leveraging Celent’s Expertise

18

 

Support for Financial Institutions

18

 

Support for Vendors

18

Related Celent Research

19

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