The COVID-19 pandemic accelerated the digital transformation of the wealth space, and the acquisition of Wealthfront by UBS is another example of how valuable digital services are post-COVID-19, says GlobalData, a leading data and analytics company.

Sergel Woldemichael, Wealth Management Analyst at GlobalData, comments: “The Coronavirus Crash was a big test for robo-advice as the concept was yet to endure a market crash, a key test of concept. However, many have endured and grown, reaching record customer numbers and assets under management (AUM).”

Traditional players have decided to take a shortcut to a robo-advice proposition via acquisitions and partnerships, as opposed to the time-consuming route of an in-house approach. GlobalData’s 2021 Global Wealth Managers Survey found that, among US wealth managers, 84% believe their market share will be eroded by robo-advisors in the next 12 months. Incumbents are well and truly aware of its value; now they are putting their money where their mouth is.

Woldemichael continues: “As much as the acquisition reinforces the notion that robo-advice is here to stay, many standalone players are yet to become profitable, including Wealthfront. Cost of customer acquisition remains a big issue, even for players that have reached AUM in the billions of dollars. Therefore, if major players such as Wealthfront and Nutmeg are open to being bought, it does not leave much hope for new robos looking to launch or current standalone players. In addition, many robo-advisors have closed down over the years. This includes UBS’s SmartWealth, which failed to attract its target market in the UK due to pricing and brand relatability issues.”

The long overdue technological transformation of the wealth industry and the increasing client demand for automated digital services has pushed traditional wealth managers such as UBS to adapt. 2021 saw JPMorgan Chase UK acquire robo-advisor Nutmeg, while the year ended with Santander announcing a partnership with technology specialists SigFig on a robo-advisor.

Woldemichael adds: “Such moves are a smart way for the old guard to attract the younger generation and mass affluent individuals. Wealthfront will benefit too as it can leverage the prestigious UBS brand. Other wealth managers will take a similar approach, purchasing robo-advisors as opposed to building a service in-house. Likewise, more robo-advisors will be looking to tie up with an established financial powerhouse in order to ensure their longevity.”