Cerulli Associates has published a report projecting that the digital advice market in the U.S. will grow to $489 billion in assets under management by 2020, an annualized growth rate of 92% over the next five years.
Pretty scary, right? That’s not the half of it.
Management consultant A.T. Kearney released a report in June of this year based on a survey of 4,000 American consumers and their willingness to use robo-advisory services. It found that by 2020 U.S. investors could have as much as $2.2 trillion invested with robo advisors, approximately half of that amount from traditional advisors and the other half from new investors moving cash into equities, etc.
More than four times the Cerulli projections, A.T. Kearney’s numbers while notable aren’t necessarily devastating to the traditional full-service advisors.
Here in Canada, where the growth in robo-advisor assets has been slower to materialize than in the U.S., the effect on advisors is more muted.
But not even US advisors necessarily need to worry.
Even if the A.T. Kearney projections pan out, it estimates that just 6% of the total investible assets in the U.S. by 2020 will be invested through robo advisors. Further, it argues that over 50% of investors will never jump on the robo-advisor bandwagon, many of whom are older than 55 and representing a bigger chunk of the total investable assets held by investors of all types.
Further, the A.T. Kearney study suggests that those that do move to robo-advisory services will be younger, more sophisticated investors from do-it-yourself platforms looking for a new, low cost approach to investing. The study calls them “early adopters” and they’ll be the ones most likely to move a larger share of their investable assets. Everyone else will move in dribs and drabs if at all.
A third projection from Citibank in September estimated that robo-advisor AUM in the U.S. would possibly reach as high as $14 trillion by the year 2025. Extrapolated over 10 years, it’s really just the A.T. Kearney number projected out over another five years. But it’s a best case scenario. Citibank’s most likely scenario actually comes in at $3.4 trillion or an annualized rate of 69%, about one-third less than A.T. Kearney’s projection.