Chapter 24: Strategizing About Robo-Advise

The financial technology (FinTech) industry has steadily gained attention in recent years. It has grown from being a USD 2.54bn industry in the entire year 2012 to a USD 6.3bn industry in only Q1 of 2019, as measured by venture capitalists backed financing data from CB Insights (2019). One of the key offerings associated with FinTech, especially in the area of wealth management (WealthTech), are Robo-advisors. Different categories of Robo-advisors exist, those that focus on the “robo” part (technology) and those that are more inclined toward the “advice” part (investment strategy). In the former category, are solutions like Scalable Capital or Financial Guard, which define their value proposition through automatic portfolio rebalancing, tax loss harvesting, and dividend reinvestment. The more investment strategy-inclined Robo-advisors tend to focus on understanding the customer’s investment objectives and risk preferences. They offer diversified, strategic asset allocations using ETFs, often relying on goal-based planning, automatic portfolio implementation, and cash management as their main value-added services. Betterment, SigFig, and Wealthsimple fall into this more customer-centric segment of Robo-advisors.