What led to the rise of robo investing, how has the wealth management industry responded and how will it develop in the future.

1. Bizzarch.com.au
The rise and fall and rise
again of robo investing
enda.mahoney@bizzarch.com.au

2. EXECUTIVE SUMMARY
In its simplest form, robo-investing is any tool, algorithm or service that helps achieve investment
outcomes for wealth investors. At its core are algorithms to determine investment strategies, optimal
portfolios and investment ideas aligned with goals, risk and time horizon. Algorithms can range from
a simple set of rules that build a single portfolio to complex multi-strategy formula that review
thousands of instruments and scenarios in order to construct an optimised portfolio.
Robo-investing took off after the Global Financial Crisis with the emergence of many fintech start-ups
(including Betterment and Wealthfront) challenging the incumbent financial institutions. Leveraging
easy-to-use interfaces, exchange traded funds, low fees, and industry distrust, they attracted
customers (especially younger and middle-aged investors) to their automated investment platforms.
By 2012, robo-investing was starting to gain traction encouraging the established players like Schwab
and Vanguard to launch competing services. The industry grew from zero funds in 2009 to a projected
$300 billion globally in assets under management at the end of 2015. Some market analysts are
predicting the industry could grow to $2.2 trillion by 2020.
As the industry grows, it appears increasingly likely that few of the fintech innovators will end up as
winners in the new world as they struggle with the high cost of client acquisition and intense
competition from incumbents who’ve responded with copycat experiences, reduce fee structures and
the luxury of large customer pools. Regulatory compliance is adding to the cost as regulators around
the world adapt their guidelines to cover robo-investing.
2

3. EXECUTIVE SUMMARY
Research also suggests that consumers do not trust fully automated solutions, tending to invest less
than 10% of their wealth in robo solutions. Tech-augmented human advisors, or hybrids mixing human
and algorithms, are rapidly growing past both their robo-advisor and traditional human advisor peers.
Going forward it appears we are entering a capability and technology arms race between financial
institutions, broker-dealers and (surviving) fintech’s as they battle to become the future platform of
choice. Personal Financial Management, Financial Planning (robo-advice) and Fractional Investing will
play an increasingly important role in the evolution of the industry and AI, machine learning and
cognitive computing will soon become a differentiator then standard between offerings.
3

4. FINTECH
4
WEALTH TECH
ROBO IS A MICROCOSM OF THE FINTECH ECOSYSTEM
ROBO
ADVICE
ROBO
INVESTING

5. LEADING AUSTRALIAN WEALTHTECH INNOVATORS
ROBO INVESTING
Self Executed Trades
ROBO INVESTING
Fully Automated
ROBO ADVICE
No Players
ROBO INVESTING
Adviser Executed
STRATEGY & RESEARCH
TRADINGPORTFOLIO ADMIN
Sharesight
ClassSuper
BGI,
CXi
Decimal, Owners Advisory
Adviserlogic, Provisio
Midwinter, Big Future
Ignition Wealth
StockDoctor, Stocklight
SimplyWallSt
Skaffold, Investsmart
PORTFOLIO MANAGEMENT
InvestSmart, Sharesight
SelfWealth, Sharesight
Nabtrade, BellDirect
CommSec, eTrade
IG Markets, SelfWealth
Owners Advisory
Macrovue
SixPark
Stockspot, Clover
IgnitionWealth, QuiteGrowth
Acorns, BT Invest
PERSONAL FINANCE
Pocketbook
MoneyBrilliant
Map My Plan

6. MIRRORING FINTECHS IN GLOBAL WEALTHTECH
ROBO INVESTING
Self Executed Trades
ROBO INVESTING
Fully Automated
ROBO ADVICE
ROBO INVESTING
Adviser Executed
STRATEGY & RESEARCH
TRADINGPORTFOLIO ADMIN
Ishares
TipRanks
VectorVest
Hiddenlevers
Vanguard PA
Personal Capital
Financial Engines
Sharesight
ClassSuper
BGI
CXi
Decimal
Owners Advisory
Adviserlogic
Provisio
Midwinter
Big Future
DriveWealth
Divy
Robinhood
Cashworkz
StockDoctor
Stocklight
SimplyWallSt
Skaffold
Investsmart
PORTFOLIO MANAGE
InvestSmart
Sharesight
SelfWealth
Swanest
Sigfig PM
TipRanks
CoVestor
Nabtrade
BellDirect
CommSec
eTrade
IG Markets
FutureAdviser
MarketRiders
Motif
OwnersAdvisory
Macrovue
Jemstep
Forward Lane
Schwab IP
Fidelity Go
Betterment
WealthFront
HL Portfolio+
Sigfig - Nutmeg
Acrons
Hedgeable
SixPark
Stockspot
Clover
IgnitionWealth
QuiteGrowth
Acorns, BT
Invest
PERSONAL FINANCE
Personal Cap
Dobot
Mint
Pocketbook
MoneyBrilliant
Map My Plan
Australian International

7. Sales &
Marketing
Customer ManagementCustomer Acquisition
Purchase
Portfolio
Review
Rebalance
ROBO INVESTING VALUE CHAIN
Use Case 1 Use Case 2 Use Case 3 Use Case 4
Use Case 1 : Shopfront discovery, the gravity that brings customers to the service
Use Case 2 : Onboarding [ customer profiling, product review and simulations ]
Use Case 3 : Onboarding [ purchase, customer sign up ]
Use Case 4 : Portfolio Management
Asset
Allocation
Discovery
Shop front
Customer
Profiling
Product
Simulations
7

8. ROBO INVESTING – BUSINESS MODELS
SELF EXECUTED
Accounts are managed via self-executed
trades which means all investment
selections, trades, and re-balancing
suggestions are identified via algorithms,
but all trades are executed manually by
the client through a third party broker-
dealer.
Good choice for Self Directed investors
that need guidance on how to properly
manage a portfolio, but who ultimately
want to act as their own decision makers
and to remain personallyinvolved in their
investments.
FULLY AUTOMATED
Accounts are managed through a fully
automated platform which means all
investment selections, re-balancing
opportunities, and trades are identified
and executed via platform integrated
investment algorithms.
Good choice for those looking to
have minimal involvement and little to no
human interaction involving personalised
portfolio strategies.
ADVISER EXECUTED
Accounts are managed via advisor-
executed trades which means investments,
trades, and re-balancing strategies are
identified by platform-integrated
investment algorithms, but are reviewed
and executed by a registered financial
adviser.
Good choice for those who don't meet the
requirements demanded by traditional
investment advisors or for those who
would like to lower portfoliofees while
continuing to receive professional guidance
8

9. …2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
THREE WAVES OF ROBO INNOVATION
Fintech Brokers
Fin Service Giants
12

10. 13
WHO’S WINNING Brokers & Platforms
>5b
Self Executed Trades Fully Automated Adviser Executed
Launch Q4 2016
Note: zero AUM means data was not freely available, but assume < $300m

11. 14
FINTECH B2C ROBO MOVEMENT IS LOSING STEAM
Copyright Michael Kitces www.kitces.com

12. 15
ROBO’S LEGACY

13. 16
1) THE EROSION OF FEES

14. 17
“ALL IN” FEES – SPLIT BY BASE FEE & EXPENSE RATIO
All in fees include management fees and
expense rations ( etf fees and trading
fees)
All fees based on $100,000 portfolio
Self Executed Trades Fully Automated Adviser Executed

15. 18
“ALL IN” FEES – BY COUNTRY & the Goldilocks zone
All in fees include management fees and
expense rations ( etf fees and trading
fees)
All fees based on $100,000 portfolio
Australia US Adviser ExecutedUK
Driving fee models down in all regions

16. 2) THE IMPORTANCE OF THE HUMAN FACTOR
There are parts of the client-advisor relationship—such as reassuring clients through difficult markets,
persuading clients to take action and synthesising different solutions—that remain the province of the
financial advisor for the foreseeable future.
It is therefore essential to develop a unified client-advisor experience that seamlessly brings together the
best of human, robo-advice and robo-investing capabilities. Understanding where robo can complement
and enhance relationships will be key for most full-service wealth management firms going forward.
Additionally, digital wealth firms are relatable and empathetic. Even though technology is used to serve
thousands of clients, the branding, messaging and vision is human. That means the goal is to have an
iPhone app, a friendly design and the ability to chat with an advisor online at any time.
In wave 3 we are seeing a shift from technology-enabled
human advice to human supported technology driven advice,
the hybrid model”
19

17. 20
3) DIGITAL WEALTH IS AN OMNI CHANNEL EXPERIENCE
Any time
Any where
Any device

18. 21
THE RISE AGAIN OF ROBO
Continued innovation and new business models are
driving the next wave of robo investing

19. 22
1) THE SHIFTING BUSINESS MODEL
Research by Michael Kitces www.kitces.com
Pure play robo-advisers are pivoting their business models as the financial majors
respond to the challenge.

20. 23
2) CRADLE TO GRAVE RELTIONSHIPS
$
Gifting
Industry players need to consider each customers investing needs as they progress
through life stages, or target a specific segment and be the best.
Graphic copyright Decimal

21. 24
3) WHOLE OF FINTECH EXPERIENCE
One of the reasons incumbent institutions are winning is their ability to offer services across
the full spectrum of banking and financial services, bring budget planning, savings,
protection and advice in one holistic experience.

22. 25
“Shift from technology-enabled human advice
to human supported technology driven advice”
4) BIG DATA & HUMAN INTERACTION
Artificial
Intelligence
Advanced
Algorithms
( eg..stress testing)
Augmented
Experience
Cognitive
Computing
Predictive
Services
Machine
Learning

23. 26
Revenue : $11 million
5) FRACTIONALISATION IS A GAME CHANGER
Fractional investing is not only
challenging the traditional
domains of funds
management, fractional
investing is creeping into
innovative plays in capital
markets (fractional trading),
property (DomaCom) and
insurance.
Fractional investing allows a
consumer to buy $50 of any
collection of shares they want
in one simple transaction.
Traditional financial service
models across the board are
under attack.
Fractional trading