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Robo-Advising: The Unforeseen Challenge

Jeffrey Chen
Apr 7, 2018 · 5 min read
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Why Robo-Advising and Young Investors Fit

The logic behind targeting millennials, or Generation Y, is sound; they are the most receptive demographic to robo-advising due to several factors. Firstly, robo-advisors offer lower management fees and smaller minimum investment amounts, which are enticing to this younger generation with less savings and an interest in growing their smaller accounts. Generation Y has been immersed in technology from a very young age and is therefore more likely to adapt a tech-oriented investment tool. In terms of management fees and minimum investment amounts as well as their unique appeal to younger investors, robo-advisors have the potential to effectively compete against traditional financial advisory services for the youngest investors. KPMG points out that companies already in traditional financial advisory services should target new and inexperienced investors to reduce market cannibalization, where newly introduced automated advising may negatively impact revenue generated from traditional advising services currently offered. Clearly, a lot of data and research points to millenials as a highly viable target market, so what has the industry found? Quite the opposite. Below are average client ages for some of the top robo-advisors in Canada by AUM:

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Understanding the Millennial Investor

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Key Takeaways

An opportunity for revenue growth lies in the Gen-Y and millennial demographic. A combination of artificial intelligence and a human touch may also improve the appeal of robo-advising services to these young investors who are new to portfolio management. As baby boomers gradually pass on their assets to their children, another major demographic in terms of size, in time there will be a large younger demographic seeking investment options. Targeting this age group will generate sustainable growth for both robo-advising companies and traditional banks expanding into the FinTech space. With robo-advisors improving the accessibility of financial services to previously untapped large demographics, innovation in marketing and acquisition of younger clients will give companies an edge.

Sources

[1] https://www.statista.com/outlook/337/109/robo-advisors/united-states

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