Robo-advisers have not ‘vanquished’ wealth managers

Conventional wisdom hailed robo-advisers as a revolution about to transform wealth management, but robo-advisers have not “vanquished” traditional wealth managers, according to PGIM.

Taimur Hyat, PGIM chief operating officer, said this revolution fizzled as early movers in robo-advice lacked an expansive distribution network and found it virtually impossible to scale up to profitability.

“Instead, incumbent wealth management firms successfully integrated automated models into their own business,” Hyat said.

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The US$1.5 trillion ($2 trillion) investment management business released a report which investigated the impact cloud computing, artificial intelligence, machine learning and big data was having on healthcare, finance and logistics.

The report drew on the insights of 70 internal investment professionals as well as leading academics, technologists, industry analysts and venture investors.

When it came to broader investment services, Hyat said global investors should brace for regulatory backlash.

“Regulatory and legal uncertainty is common across many aspects of innovative technologies including data privacy, ESG [environmental, social and governance] and anti-money laundering,” Hyat said.

“The regulatory environment around start-up banks and payment platforms remains unsettled.”

In the US and Europe, neobanks offered “great potential” but were no threat to big institutions.

“[They are] largely targeting unbanked and disengaged segments of the market rather than prime consumer and business lending clients that are the bread and butter of established consumer and commercial banks,” Hyat said.

Disruption in service sector is incoming

The report also found technological disruption in healthcare, finance and logistics would increase the dominance of market leaders.

Its main finding was that disruption in these industries, which had high infrastructure costs, sticky client bases and incoming regulation, would increase the dominance of market leaders who maintained high integration of technology.

According to the research, the services industry now represented three-quarters of the workforce in developed markets, two-thirds of global gross domestic product and more than one-third of the typical institutional portfolio.

With the COVID-19 pandemic accelerating the rate at which technology “radically reshaped winners and losers across the services sector”, Hyat said long-term investors needed to be forward looking.

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