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The future of Wealth Management: Robo-advisors as investment managers, Humans as relationship managers

The future of Wealth Management: Robo-advisors as investment managers, Humans as relationship managers

Wealth management is undergoing a major upheaval due to the advent of cutting edge technologies like Artificial Intelligence (AI). However, the term AI is used fungibly to describe multiple technologies, a few which have been around for quite some time, such as data analytics and visualization. As a result, the focus has recently shifted to tools which can either mimic human judgements or learn human behavior using algorithms and large data sets. Wealth managers look at AI with suspicion owing to the fact that they believe it will threaten their jobs. However, wealth managers should take a holistic and inclusive view of AI as it can be used to augment one’s analytical and decision making capabilities. This leaves significant room for other activities (like client facing and consulting type of activities) which enhances client and firm value.

by Mrinal Mishra.


One of the more commonly spoken trends impacting wealth mangers are advances in robo-advisory capabilities. According to this article, robo-advisors currently manage more than $200 billion in assets and their relevance will continue to grow with time, especially as investors become more technology savvy and demand a greater “bang for buck”. As a result, incumbent institutions can ill afford to ignore the emergence of robo-advisory tools and have to take the risks associated to business transformation necessary to leverage the benefits of robo-advisory soluitons.

The current quantitative model for pure-play robo-advisors buckets investors into portfolios based on automated risk-profiling rules. While this approach is simple, costless and intuitive, it does tend to paint different investor profiles with broad strokes of the same brush. Moreover, due to its “black box” approach, it does not foster trust. Due to its mission of making investment advice available to all, it does not value customized experience that investors might expect. Brand awareness and loyalty also remain a concern as investors view the entire bouquet of services as a commodity product. This makes low fees the sole criteria for picking one’s financial advisor.

Many clients expect human advisors to tailor solutions for their unique situations and goals. As a result, many wealth management firms are investing in robo-advisory capabilities but combining them with some human interaction (to retain the personal touch) to deliver a kind of “hybrid” advice.

Be that as it may, advances in AI algorithms and computing capabilities make robo-advisors smarter. Enhancements in neural networks and behavioral science will allow wealth managers to better understand client needs and propose tailored solutions based on historic behavior. This will enable human advisors to spend more time on value-add activities like relationship building, client management and holistic financial planning. As such, we can look at a tendency where AI will become the investment manager while human advisors will become the relationship manager.

Consequently, the primary determinant for a successful wealth management firm will be delivering a holistic customer experience based both on AI solutions and human advice. Successful wealth managers will be those who manage to equip themselves with the state-of-the-art AI tools (to deliver more accurate results) while cultivating sound relationships with their clients based on personal rapport.

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