A historic account of robo advisors

Robo advisors are digital platforms that provide algorithm-based, automated financial investment services to users with minimal human interaction. Robo advisors typically collect information from their users such as financial position, saving capacity and investment goals. Collected through an online survey, the platform uses this information to generate investing advice and invest the users' funds according to their goals.

The Robo History

Robo advisors can be traced back to 2005-2006 when financial technology company, Mint, experimented with a semi-automated personal finance management system. The ancestors of our present-day advanced robo advisors were first launched and made available to the public in 2008 after the global financial crisis. This initiated the early acceptance of automated robo advisors.

Mint was later acquired by Intuit, a financial software company, in 2009 which spurred the launch numerous robo advisory platforms. Pioneers such as Betterment, Wealthfront and Future Advisor emerged around the same time. Future Advisor was the world’s first robo advisor to directly link to retirement accounts; and Betterment which started out as a cash and investment company later went on to become the world’s biggest robo advisor five years after its launch.

Over the years, robo advisory platforms were launched in various corners of the world. China witnessed its first robo advisor in 2015, with early movers that include Pintec Technology, China Merchants Bank, and CreditEase, and the UK had wealth management platform, Moneyfarm in 2016. North America went on to create niche robo advisory platforms targeting select investor demographics—Ellevest is a female-driven company that was launched to help women with financial planning, career coaching and investing; and Wahed Invest was the first to launch a Shariah compliant robo advisory platform.

Robo Advisors In Numbers

Within that short period of time, total assets under management in the global robo advisor market reached $225 billion in 2017. In the same year, the top three independent robo advisors managed over half a million accounts and the profit of wealth management companies dropped by almost a third as clients turn to robo advisory.

Industry experts expect this market segment to register a compound annual growth rate of approximately 50% between 2020 to 2025 driven by the rapid digitization of the banking and financial services industry. Several well-known institutes in the industry projected that between $2.2-3.7 trillion in assets to be managed with the support of robo advisors in 2020. According to Deloitte, by 2025, this number is expected to rise to $16 trillion—approximately three times the amount of assets managed by Blackrock, the world’s biggest asset manager to date.

As automation becomes a key component to every digital experience, robo advisory is poised to continuously play an integral role in global financial transactions. Various external factors such as changing demographics, higher expectations of customer experience as well as economic pressures, will cement the usage of robo advisors in the future of wealth and investment management.