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Robo Advice: From Challenger to Stepping Stone

@ olo Cognizant ROBO ADVICE FROM CHALLENGER TO STEPPING STONE Robo advice helps banks attract mass affluent and millennials, who, once satisfied with Al-enabled guidance, can graduate to a hybrid human-bot model. Вy 2020 hybrid robo services will grow to $3.7 trillion in assets worldwide. Ву comparison, "pure" robo advisors will reach By 2025 the total market size 1.6% of the total global wealth will further increase to $16.3 trillion – just over 10% of the total investable wealth.? in 2025 The Lure of ROBO ADVICE for Millennials and Mass Affluent 2.0% Low Convenience anytime, anywhere, sans face-to-face interactions investment threshold 1.0% Greater transparency and flexibility 0.4% 00101010 Aggregated wisdom of Low fees as low as 0.4% of 000 assets compared with 1% to 2%4 the crowd Why HYBRID MODELS are a Naturál Evolution for the Industry Pure human advisor model is on the wane: • Increasingly rely on big data and analytics. High net-worth investors (HNIS) are tech-savvy, prefer hands-on approach.5 As their goals evolve, investors Mortgage loans are too complex for self-service customers. need holistic and customized 72% of millennials advice; this 72% expect to apply for a mortgage in the next 5 years. favors human advisors. 57% expect to work with a financial advisor. 57% 71% ~71% of consumers believe advice given by their bank is important. Advanced Only 41% rated Al-based 41% investment advice as important. communication tools help advisors connect with clients easily freeing them from rote work 国 回 allowing for client diversity. A convergence to hybrid models is underway: Banks & wealth management firms offer robo advice to complement their offerings.0 Traditional wealth management firms are acquiring robo advisors.", 12 • Robo advisors are adding human advice to their offerings.13, 14 NSIDERATIONS? for Firms Looking to Offer HYBRID SOLÚTIONS Products and Investment Strategy Are exchange traded funds' already part of the existing asset universe offered? What other asset classes are needed to develop expertise and offer more automated, low-cost solutions? • Does the firm have model portfolios that leverage product segmentation that may support automated/self-service models? Sales Channel What are the business goals extend client coverage, improve client experience, provide more self-enablement? In addition to automating advisory processes, what other digital initiatives would improve sales efficiency? How will your organization deploy digital tools to maintain and improve clients' "high touch" experiences? Has your organization planned client education sessions to promote self- service versus advisor offers? How will these offerings be best leveraged? D DO0000 O %$4 3. Fee Structure How does your organization intend to pass on automation's benefits to HNI clients - e.g., fee reductions based on usage of alternative channels, or improved user experience such as increased advisor time, etc.? Has your organization planned/developed business cases for extending its offerings (either fully automated advice or advice-on-demand type model) to other client segments? Technology What is the current level of technology competencies to support understanding and internalization, based on the selected approach of build, partner, or buy? Does your firm offer any new digital capabilities such as gamification, investor communities, collaboration, online training and information? What is the investment appetite to support and drive digital ecosystems that would help improve the efficacy of automated advice? How scalable are current-state advisory and booking platforms? Services to client segments such as mass affluent will likely significantly increase processing volumes. What integration challenges do you anticipate in offering interoperable, or even stand-alone automated advisory platforms that work with existing infrastructure? Legal and Compliance • What is your firm's planned approach for monitoring and oversight of automated advice, particularly in the self-service channel, regarding regulations around investor protection and client best interest? How can your organization effectively balance advice in hybrid/advice-on-demand type models, where the client may start with self-service but subsequently need advice? For more on robo advice, please read our white paper, "Emerging Trends in Automated Wealth Management Advice" at http://cogniz.at/roboadvisors Footnotes 1 http://www.businessinsider.com/hybrid-robo-advisors-will-manage-10-of-all-investable-assets-by-2025-2016-8?IR=T 2 ibid 3 ibid 4 http://time.com/money/4616753/robo-advisor-online-financial-planning-advice/ 5 http://www.investmentnews.com/article/20170524/FREE/170529966/betterment-targets-more-affluent-investors https://www.ftadviser.com/your-industry/2016/10/19/robo-advice-not-a-hit-with-millennials/ 7 https://www.ftadviser.com/your-industry/2017/06/19/how-robo-advice-is-evolving-across-the world/ 8 https://www.ftadviser.com/your-industry/2017/05/24/only-one-in-five-people-trust-robo-advice/ 9 https://www.ftadviser.com/your-industry/2017/06/19/how-robo-advice-is-evolving-across-the-world/ 10 http://www.cnbc.com/2017/03/14/charles-schwab-launches-hybrid-human-robo-financial-advice.html " http://fortune.com/2015/08/26/blackrock-robo-advisor-acquisition/ 12 https://pressroom.vanguard.com/news/Vanguard_Introduces_Personal_Advisor_Services_Lowers_Minimum.html 13 http://www.cnbc.com/2017/01/31/reuters-america-robo-adviser-betterment-adds-human-advice.html 14 https://www.ifa.com.au/news/17698-us-robos-move-to-hybrid-automated-advice-models 6 © Copyright 2017, Cognizant. All rights reserved. No part of this document may be reproduced, stored in a retrieval system, transmitted in any form or by any means, electronic, mechanical, photocopying, recording, or otherwise, without the express written permission from Cognizant. The information con- tained herein is subject to change without notice. All other trademarks mentioned herein are the property of their respective owners. TL Codex 2831

Robo Advice: From Challenger to Stepping Stone

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Not long ago, robo advice carried a whiff of mass produced operational efficiency rather than the sweet scent of better wealth management outcomes for clients and firms alike. The economic and social ...

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