Is my iPod a robo-advisor?

by: Paolo Sironi

Twitter: @thepsironi

“Are robo-advisors truly disruptive?

This question has been resonating the many blogs and conferences on financial advisory. It reminds me of the many headlines back in 2001, when Apple revolutionised the music industry:

“Are iPods truly disruptive?

We cannot deny that robo-advisors are innovative business models, but are these FinTechs real game changers? This article wants to answer this question in four steps.

First of all, we build an analogy between robo-advisors and consumers’ behaviour at the time of the iPod launch, which saw the demise of the Hi-Fi market.

Second, we discuss the theory of innovation and we learn how to distinguish between disruptive and sustaining innovation. When the iPod came to life it was as a new magic. Was it better music? Not really: it made me feel cool, it was just simpler and cheaper than a Hi-Fi.

“This is what disruptive innovation is all about: a downshift in paradigm.

Thereafter, the market was flooded with higher margin appliances: the iPhones, the iPads … recently the Apple Watch. This made the fortune of some tech companies, made others shine away and ultimately transformed the way technology is bought, accessed, consumed and experienced.

“This is what sustaining innovation is all about: a path for growth.

Third, we identify the market player which feel threatened: human advisors but also Platforms, ETF and Mutual Funds, Active Fund Managers.

Fourth, we discuss a bit of banking theory and demonstrate why banks risk to loose their competitive advantage. Social media, big-data analytics, robo-advisors and regulation are changing the asymmetry of information, which has shaped the financial industry for centuries. For the first time, long-tail investors can become price makers in the wealth management relationship, while banks could be relegated to price-takers.

Smart, technology savvy financial advisors can take advantage of this shift, and re-build a whole industry to the their own business advantage.

Editors Notes: This entry has been submitted to the FINTECH Book, the world’s 1st globally crowd-sourced book on FINTECH. Readers that enjoyed this initial abstract are invited to share and like it so that it may be featured in a longer version.

The FINTECH Book is due to be released in April 2016 and is available for Pre-Order on Amazon.