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Alternative Market Briefing

Will roboadvisors go the way of 1990s internet banks?

Wednesday, October 28, 2015

Bailey McCann, Opalesque New York:

Silver Lane is out with a new paper suggesting that roboadvisors will go the way of the internet banks of the 1990s. Roboadvisors are automated portfolio management solutions that offer low-cost access to an investment portfolio. Despite the growth in popularity of roboadvisors, Silver Lane notes striking parallels with the internet bank boomlet in the early days of the internet.

Some forecasters expect robos to grow 10-fold to more than $2 trillion of AUM in the next five years by undercutting industry pricing as much as 75%. But even as new entrants continue to pile into the market, AUM remains small; consolidation has begun; and industry behemoths have started to leapfrog the start-ups.

"Traditional advisors have just now started to catch on, so the leaderboard will change. Once Bank of America threw its weight behind online banking some 15 years ago, it started adding more accounts every 90 days than the largest Internet-only bank had added in its entire five-year life. [...] Schwab and Vanguard are following the same playbook today by developing robo capabilities internally. Other players, such as BlackRock and Northwestern Mutual, have acquired their way into the market. The landscape will change," report authors write.

Authors suggest that it will be more difficult for these advisors to make the economies of scale they need to overcome a Schwab in th......................

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