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US ‘robo-advice’ assets to top £1,200bn

US ‘robo-advice’ assets to top £1,200bn

Around $2,000bn (£1,200bn) will be managed under ‘robo-advisers’ in the US by 2020, according to one consultancy firm, with major financial institutions blazing the AI adviser trail on the other side of the pond.

The prediction came from consulting firm AT Kearney’s May study into the area of artificial intelligence and algorithms being used in so-called ‘robo-advice’ systems, which polled a nationally representative sample of more than 4,000 US adults.

It found that 20 per cent of consumers already reported being aware of robo-advisery services, with 48 per cent having some level of interest in using them (ranging some somewhat to extremely interested) and 69 per cent being likely to use robo services investable assets (somewhat likely to extremely likely).

Analysis of the market suggested that robo-advisers will become mainstream over the next three to five years, with adoption moving from 0.5 per cent of total investable assets in 2015 to 5.6 per cent across the US in 2020.

Perhaps unsuprisingly, early adopters are likely to be younger - 50 per cent under 35 years old - and risk-taking investors - 20 per cent self-described as risk takers - according to the consultant, while likely adopters were profiled as being older - 45 per cent over the age of 55 - and non-risk takers - 70 per cent cautious or risk adverse investors.

Bob Hedges, a partner in the financial institutions practice at AT Kearney, told FTAdviser that in the last few years consumers have become increasingly comfortable doing financial transactions online and on mobile.

“Now choosing risk, rebalancing and investment portfolios can all be done online and without traditional advice, so at a fraction of the cost paid for a managed portfolio service.

“Leadership is coming from the likes of Charles Schwab and Vanguard, while Bank of America Merrill Lynch is also rumoured to be developing something in this space.”

Investment firm Charles Schwab launched its fully-automated investment advisory service Intelligent Portfolios in March this year, using algorithms to build, monitor and rebalance diversified portfolios based on an investor’s stated goals, time horizon and risk tolerance - without charging any adviser fees, commissions or account services fees.

Investors with as little as $5,000 (£3,200) receive a portfolio recommendation after answering a short set of questions that quickly assess their goals and risk tolerance.

A version for independent advisers who custody their client assets with Schwab was made available in June, with executive vice president Naureen Hassan stating: “There’s a lot of interest among advisors for automated investment management solutions”.

A Schwab spokeswoman told FTAdviser: “Advisors have told us that automated investing can help them reach broader market segments, including younger, next-generation investors, while helping them more efficiently scale their businesses.

“We know of firms who believe that this platform will help them efficiently serve clients with assets below current firm minimums, and children of current clients.”

In the first six weeks, Schwab’s service had $1.5bn (£963m) in assets, and according to results published this month, Intelligent Portfolios had $3bn (£1.92bn) at the end of the second quarter with 39,000 accounts.