KEY TAKEAWAYS
  • The rise of independent robo-advisors that rely on a a combination of passive investment strategies, algorithmic risk assessment and low fees has shaken up the wealth management business.
  • The large incumbents in the space have taken note and responded by launching Robo-advisory services of their own on an even larger scale.
  • The question is whether independent robo-advisors can continue to survive by diversifying their offerings or are they inevitable acquisition targets for the larger incumbents in the space?

Not surprisingly, the adoption rate of robo-advisors for millennials is the among the highest of the demographic groups. For example, the average age of an Acorns investor is 32 years old with median incomes between $50,000 and $60,000. This demographic group has grown up in an increasingly digital and impersonal world where convenience, low cost, and instant gratification are highly valued. Though, perhaps these values are also driven by fact that millennials are set to face the worst income inequality than any other generation. A Credit Suisse study of millennials in the U.S., Germany, France, and Spain shows that these young adults face more student debt and less inherited money than previous generations.

Considering the massive wealth gap that millennials face, it is not surprising that they are expressing their financial insecurity through the rapid adoption of these low-cost and broadly available savings platforms. Moreover, many robo-advisors are appealing to the socially and environmentally responsible nature of millennials who tend to invest in companies with social and environmental impact at twice the rate of other generations. Though, it is not only the digital-savvy millennials who are driving the growth in assets under management, Baby Boomers are also becoming increasingly comfortable with using robo-advisors.

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