Robo Advisory Market by Business Model (Pure Robo Advisor and Hybrid Robo Advisor), End-use (Retail, Affluent, HNI, and UHNI), and Regional Analysis (North America, Europe, Asia-Pacific, and LAMEA): Global Opportunity Analysis and Industry Forecast, 2021–2028

Robo Advisory Market Analysis

The global robo advisory market is anticipated to garner $59,344.5 million in the 2021–2028 timeframe, growing from $4,600.0 million in 2020, at a healthy CAGR 39.9%.

Market Synopsis

The robo advisory market is expected to grow due to product advancements, acquisitions, and business expansion by key market players and also the increasing adoption of the robo advisory for the easy use of financial services.

However, the main impediment is even with a high level of digital interaction, clients frequently feel best-served by human advisors in uncertain market circumstances. As preference of the users is towards the traditional advisor is still on rise, users frequently feel best-served by human advisors in uncertain market circumstances.

According to the regional analysis of the market, the Asia-Pacific Robo advisory market is anticipated to grow at a CAGR of 41.7%, by generating a revenue of $19,518.4 million during the review period.

Robo Advisory Overview

Silicon Valley's financial technology boom has enabled companies to launch robo-advisors. In the financial industry, a robo-advisor is a type of digital financial advisor that manages investments and also offers financial advice with minimal human involvement. Using digital technologies, robot advisors provide digital advice based on input from investors. Based on algorithmic calculations, robot advisors analyze client data such as their financial condition and provide comprehensive asset allocation solutions that meet their future financial goals. Rapid automation of processes and businesses across end-user industries is a major driver of robo-advisory service adoption. These services eliminate the need for human labor because online platforms provide the same services at a fraction of the cost.

COVID-19 Impact on Robo Advisory Market

The COVID-19 pandemic has demonstrated to investors the importance of online services for investment purposes. Clients who previously preferred to speak with a humanoid advisor and even now prefer to visit a bank branch are gradually changing their behavior. This is due to the fact that banks closed their divisions when governments voted for a lockdown. Often, consumers did not expect such a radical move and thus were spending more time on alternative services, which can offer an adequate client experience. The impact of the covid on the robo advisory market is positive. Global concerns have grown since the outburst of COVID-19, which, combined with the constant oil-price war, have shook investors around worldwide. Backend benchmarking, which tracks performance by opening portfolios at leading robo-advisors, found that most digital advisor-managed portfolios performed similarly during market swings. As the coronavirus forces more and more advisers into lockdown mode, the number of users on an online wealth management platform or robo advisory in wealth management has doubled. From wealth management companies’ viewpoints, advisors are spending time managerial clients that have been affected by coronavirus impacts – both personally and economically. For robo-advisors, communication will be slightly different than traditional advisory firms. They will need to lean on digital collaboration tools at their disposal through email, push notifications, and in-app notifications. Innovative tools, such as chat functionality or video conference to connect with a team of advisors, could assist robo-advisors in providing the human touch required to alleviate clients' anxieties during difficult times. Betterment and Personal Capital, for example, already provide financial advisor access as part of their premium services.

Rise of Robo Advisors is Expected to Drive the Growth

One of the most significant changes in FinTech has been the rise of the robo-advisors. Their growth is primarily due to the fact that they have been able to reach a large segment of the public that does not have access to traditional consulting due to financial constraints, thereby bridging this gap. The financial services industry has been transforming and assisting advisory services in recent years. This revolution occurred at a time when the market was in the highest demand in history, thanks to the recent technological boom. To ensure that every individual has access to financial advice, new solutions have been added to the industry, which we call robot advising. Robo-advisors have gained the attention of investors and institutions seeking to understand the changing landscape. Nonetheless, despite their rapid growth, robot advisors hold a very small share of the market in comparison to traditional financial advice providers. Robot advisors use computer-based technology to redesign their portfolio management processes, creating a variety of algorithms to optimize clients' current asset portfolios and tax management. In practice, these "robots" can make trading recommendations in the stock market. Traditional investment advisory services have primarily served institutional clients. Individual investors could not seek assistance in this manner due to the high management costs. Furthermore, millennials are accustomed to reading electronic forms of communication. As a result, robot advisors are accessible to a large portion of the investing public.

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High Initial Cost of Robo Advisory and Lack of Expertise in the Market Expected to Hamper the Growth of the Robo Advisory Market

The issues concerning the size of investments and the depth of expertise required to develop and manage robo-advisory competencies in an environment with numerous legacy IT systems, and the high initial cost required for it can hinder the growth of the market.

The Use of Digital Technology and Automation in Wealth Management are Creating the Growth Opportunities for the Robo Advisory Market Globally

The digital revolution is reshaping traditional business environments in industries such as banking, asset management, and insurance. Because technology is constantly evolving, the term FinTech, an abbreviation for financial technology, has emerged. The wealth management (WM) industry is undergoing significant transformation. A new generation of investors, shaped by new technologies and having lived through the previous financial crisis, has brought new standards to the industry in terms of how advice and investment products are delivered. Additionally, as BFSIs embrace large-scale technology upgrades and digitization in an effort to return to normalcy, IoT, along with 5G and the cloud, are changing the way banks operate. The high cost of manual services, combined with the growing need to eliminate legacy operations, have compelled organizations to adopt new automation tools. These tools not only help to reduce costs, but they also help to increase capacity, improve employee engagement, and provide a better customer experience by providing superior products. This common trend is expected to continue be the competition for the traditional advisors. The rise in digitization has resulted in an increase in the number of robo-advisors, who use automated, algorithm-based systems to advice on portfolio management based on the financial condition, risk appetite, and future goals of individuals. For instance, in November 2021, JPMorgan, an American multinational investment bank and financial services holding company, filed an ADV for the launch of a call-center RIA led by a former Vanguard Group call center head, with explicit disclosures about who will manage the assets. Additionally, JP Morgan, in June 2021, acquired robo-advisor Nutmeg, which will spearhead the expansion of retail banking in the United Kingdom. A nearly £700 million deal with Nutmeg, a British digital wealth manager, as part of the US bank's expansion into the UK retail banking and investment market, was made. The speedy growth of artificial intelligence (AI) application areas is having a significant impact on the environment in which businesses operate. AI has the potential to completely transform the wealth management industry. The use of robots in wealth management and investment advice is a growing industry trend and creating the growth opportunities.

Source: Research Dive Analysis

The pure robo advisory sub-segment of the global robo advisory market is anticipated to have the fastest growing market share and surpass $ 27,931.5 million by 2028, with an increase from $ 2,096.8 million in 2020, with the CAGR of 39.5%. More than a decade after their inception, robo-advisors have reached a tipping point. Despite the initial success and hype, widespread adoption has remained elusive. As the number of market participants grows, pure play robo solutions begin to commoditize. Furthermore, while robo-advice is an excellent solution for simple portfolio strategies, difficulties arise as customer needs become more complex. For a young person with a low net worth, robo-advice may be the best option. The ongoing development of fintech digital services, as well as the high cost associated with traditional robo advisors, are creating growth opportunities for robo advisory providers, and ongoing research on pure robo advisory is assisting in market growth.

The hybrid robo advisory sub-segment of the global robo advisory market is anticipated to have dominant market share and surpass $ 31,413.0 million by 2028, with an increase from $ 2,503.2 million in 2020.Given the foregoing, various hybrid-model solutions are likely to be the best alternative when designing robo-advisory-based investment services. Based on the sources review, it is estimated that the long-term industry winners in the wealth management industry will be those service providers who can combine the efficiencies of AI with the personal requirements for trust and human understanding to add true value for customers through customer segmentation. For the majority of private banking customers with larger investable amounts, personal contact is still important (Cocca, 2016). As a result, regardless of the increased use of technology, a hybrid model in which the simplest services are provided using automated services, but the more complex advice is delivered as a personal service appears to have the greatest potential in the near future.

Source: Research Dive Analysis

The HNI sub-segment is anticipated to have a dominant market share and generate a revenue of $21,678.5 million by 2028, growing from $1,671.5 million in 2020. Robo-advisors have emerged as important players in the investment management industry. These platforms have made investing more accessible, affordable, and automated by using mathematical algorithms to set and manage investment portfolios. Another advantage of robo-advisors for high-net-worth individuals (HNI) is that they can prevent them from making costly mistakes, such as selling afterward a market decline and then buying back in at the market peak. There are lists of robo advisors available in the market for HNI such as personal capital, betterment, vanguard personal advisor, and many more. The growing population of the HNI across the globe, increasing need of robo advisor to take the decisions such as business funding, or advice on the succession planning, and others have boosted the demand for market across the globe.

The affluent sub-segment is anticipated to have the fastest growth and generate a revenue of $10758.7 million by 2028, growing from $759.7 million in 2020, with the healthy CAGR of 41.6%. Over the past few years, a new wave of digital wealth management FinTech firms offering automated investment advisory services has started to gather the attention of the industry. This automated investment advisory solution has seen substantial market share growth over the past few years and is projected to gain even more traction going forward. Due to higher capital requirements, the affluent sub-segment is unable to access traditional advisory services provided by private banking. Clients in the mass affluent segment, who have more investable capital and better investment knowledge, would also benefit from professional advisory services. As a result, they are more likely to adopt robo-advisory solutions.

Source: Research Dive Analysis

The Market for Robo Advisory in North America was the Largest Share Holder in 2020

The North America robo advisory market accounted $1,616.9 million in 2020 and is projected to register a revenue of $19,488.7 million by 2028. In North America, the robo-advisor market is driven by factors such as increasing demand for internet finance/ robo finance and growing awareness about robo-services among consumers. In addition, technological advancements in digital advisory solutions are driving the growth of this market over the forecast period. The North America robo-advisor market is expected to grow in coming year also, driven by strong growth in the retail sector and increasing focus on cost management among the middle-income populations.

The Market for Robo Advisory in Asia-Pacific to be the Most Lucrative

The Asia-Pacific Robo advisory market accounted $1,374.9 million in 2020 and is projected to register a revenue of $19,518.4 million by 2028. The Asia-Pacific robo advisory market forecast is expected to grow at a significant CAGR 41.7%. Exploring opportunities in emerging markets is an unexpected way for market growth. For future growth prospects, a robo-advisor only needs to look to the Asia Pacific region, which has the world's largest and fastest growing middle class in terms of net worth, as well as more high net-worth millennial entrepreneurs than even the United States. These millennials are not only poised to receive their inheritances without incurring the student loan debt that plagues the only comparable market, the United States, but they are also more likely to trust robo-advisors than their counterparts in North America and Europe.

Competitive Scenario in the Global Robo Advisory Market

Product advancements, innovations, and business expansion are common strategies followed by major market players.

Source: Research Dive Analysis

Some of the leading robo advisory market players are Charles Schwab Corporation, The Vanguard Group, Inc., Betterment, FMR LLC., WEALTHFRONT CORPORATION., Ellevest, SigFig Wealth Management LLC. (Nvest, Inc.), Banco Santander S.A., Acorns., and T. Rowe Price.

Porter’s Five Forces Analysis for the Global Robo Advisory Market:

• Bargaining Power of Suppliers: Global robo advisory suppliers are numerous and increasingly globalized. As a result, suppliers of robo advisory lose bargaining power. As a result, the supplier's bargaining power is limited.
  Thus, the bargaining power suppliers is low.
• Bargaining Power of Buyers: Buyers have strong bargaining power, owing to rising demand for robo advisory with advanced technologies such as fully automated (without human interference). As a result, multiple suppliers are providing multi functionality but low-cost devices. As a result, buyers have a wide range of options at various price points to choose from. 
  The bargaining power of the buyer is high.
• Threat of New Entrants: The companies entering robo advisory market have to deal with high investment cost and adhere to the environmental regulations as well. 
  Thus, the threat of the new entrants is low.
• Threat of Substitutes: There are various substitutes available in the market such as human advisor market. There is high demand for the human advisor over the digital or robo advisory due to the lack of awareness regarding the service available in the market at low prices, and they are affordable by the consumers.
  Thus, the threat of substitutes is high.
• Competitive Rivalry in the Market: The ventures operating in the robo advisory industry are opting for multiple business development strategies to stronghold their market position in the industry. Also, the key players like Charles Schwab Corporation, The Vanguard Group, Inc., and Betterment. are investing heavily to provide good financial services to the customers. 
  Therefore, competitive rivalry in the market is high.