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Morgan Stanley on roboadvisers and fintech


Morgan
Stanley

A lot of robo-advice startups could be heading for trouble.

Robo-advisers provide financial advice or portfolio
management online or via a smartphone application. Rather than
using human managers to build portfolios, they
use algorithms to determine where to invest. 

Global assets managed by robos could reach $13
trillion by 2025 in a best case scenario, according to a
group of equity analysts at Morgan Stanley. That’s up from
$100 billion as of December 2016. 

But while robo pioneers Betterment, Wealthfront and Nutmeg have
been growing at a fast clip, it’s actually the legacy
firms such as Vanguard and Charles Schwab that will
drive growth in the robo-advice space moving forward,
according to Morgan Stanley. Schwab already has close to $50
billion in robo assets, up from $4.2 billion in
2014. 

“[W]e think the incumbents are best positioned to win market
share, and we see the fact that ~70% of the companies we
interviewed either just launched or are about to launch such
offering as a step in such direction,” the bank said. 

That’s because legacy firms have their brand names to back them
up. A lot of investors, especially high-net-worth investors, are
more comfortable giving their money to a well-established Wall
Street firm than to a young startup from the Valley. 

“The case of Vanguard and Schwab has showed that network and
brand are key to lower cost of acquisition, and allow for faster
expansion,” the bank said. 

But this doesn’t mean the bank thinks the end is nigh for all
robo-advice fintech firms. They believe a “handful” will survive,
but most will have to partner up with other startups or get
bought out by incumbent firms. 

This consolidation is already underway. TIAA, a New York-based
financial services firm,
bought the business-to-business robo-adviser MyVest
in 2016.
In the same year, Invesco, a legacy…

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