KCRA Q&A: A.T. Kearney’s Uday Singh
Robo-advising, using computer algorithms to handle
some of the rudimentary tasks in managing investors’ accounts such as portfolio rebalancing and
investment selection, is gaining in popularity. Robos
can benefit both the investor and the advisor and
will predictably advance in sophistication over time
as they increase in function. A recent model that has
developed involves the pairing of the human advisor
with its “robotic” partner. KCRA’s financial services
research team spoke with Uday Singh, a partner in
the financial institutions practice at A. T. Kearney about this development
and the effects of robo-advisors on the financial services industry.
KCRA: What do you think will be some
of the short-term industry effects of
robo-advice–for instance, some of the
positive or negative impact on other
channels such as call centers and broker support services?
Singh: In the short term we expect to
see more anxiety than actual impact.
Human advisors in different channels,
whether they be contact center based
or branch based will feel uncertain and
anxious that robo-services are a threat.
In reality, however, the impact over
the next couple of years will be small
and even in five years, the total financial assets managed by robo-advisors
will only be 5 percent. This is a significant number, showing that the concept has traction in the market. But the
short term should not impact the human advisor. Our research does show
that consumers most interested in robo-advice tend to be those that have
a self-directed investment style. It is
an opportunity for firms serving this
segment to round out their offering
by providing robo-advisory services.
In fact, we found 66 percent of those
who can be considered first wave
adopters identify as having mainly a
self-directed investment style.
KCRA: The combination of robo and
human advisors (noted in the WSJ
coverage on the A. T. Kearney robo research) may be a stronger combination
than the sum of its parts. What’s your
view on this and how might this combination benefit investment firms?
Singh: Robo and human advisors together are going to be a winning combination. Ultimately there will be clients
who will want to pick up the phone and
talk to a person on the other side who
can provide them with counsel and advice. Industry practitioners with whom
I speak say this human touch will be
very important in a down market. We
have only seen good times over the recent past 3-4 years, but when the going
gets tough, some investors will want to
talk to someone who can reassure them
that they are on the right path.
KCRA: Many Gen-Xers and Baby
Boomers have been trained by years
of automated phone tree answering
services to equate automation with
“low value customer;” is there a danger
to an asset manager’s brand in using
We find that a frictionless, well designed digital experience especially
on a tablet such as an iPad actually enhances a brand vs. detracting from it.
A well thought-out digital experience
will be accretive to asset managers’
brands and is perceived by consumers
to be very different from phone trees.
We work with clients end to end to
think about what their digital experience should be and help engineer
it end-to-end so that it fits with their
target segmentation and brand value.
KCRA: Some have suggested that
Millennials are attracted to robo-advisor services because they may
not have to meet the minimum account requirements as compared to
a traditional advisor. But one could
argue that there are many other
opportunities for small investors, so
what’s the real appeal of robos?
Singh: Millennials have repeatedly
shown great adoption of technology
enabled financial services and have
trusted these offerings. Great examples
include PayPal and Venmo. This is an
extension of the trend where they will
embrace robo-advice as part of their
financial services eco-system. The fact
that the minimums are lower makes it
an even more attractive proposition.
KCRA: Do you believe there’s a danger that the growth of “institutional
grade tax-loss harvesting” strategies
using robo-adviser technology could
lead to greater regulatory scrutiny of
Singh: As robo-advice becomes more
mainstream it is natural there will be
more regulatory scrutiny—a critical
point is that we expect most assets
under the robo-advisor model will be
in existing complexes like Schwab
or Vanguard. The compliance and
regulatory scrutiny these existing
complexes have to undergo will not
change regardless of the offering and
by extension will ultimately apply to
the new entrants.