Investment advisory firms are operating in an extremely challenging environment.  Interest rates remain extremely low by historical standards, making it difficult for firms to offer investors “safe” returns.  Tech-savvy customers demand personalized service, competition is fiercer than ever, and regulators keep adding new requirements for reporting and transparency.  As a result, the investment advisory market is experiencing major turbulence, with existing business models and commercial offerings under severe scrutiny.  Like many other industries, the investment advisory business is ripe for disruption. 

The entrance of financial technology or FinTech firms into the investment advisory business is a potentially significant disruptive element.  In this case, FinTechs take the form of robo-advisors, businesses providing viable alternatives to traditional advisory firms by offering qualified advice, an innovative business model, low costs and an engaging experience to their target customers, who are, at this stage, investors or potential investors not served by advisors. 

The FinTech/robo-advisor phenomenon began in the US, but has quickly spread across Europe.  At this point, all major European investment advisory firms are asking themselves whether the business case underpinning their current model is sustainable in the long term, and whether business to consumer (B2C) or business to business (B2B) robo-advisory models might complement (or replace) their current distribution strategies. 

Robo-advisors in Europe have launched interesting initiatives, but, since the market opportunity or “white space” is considerably smaller in Europe than it is in the US, the robo-advisory market is expected to reach its saturation point within the next 12 to 24 months.  If internationally based FinTech firms penetrate the European market – for example, by forming alliances with local banks or insurers – saturation will be reached even sooner. 

Current players in the investment advisory market must come up with a viable solution if they are to survive the invasion of the robo-advisors.  In the next two blogs in this series, we will look at some of the options available to investment advisory firms as they confront this disruptive force. 

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