How big a threat are the new batch of robo-advisors to traditional active fund managers?
Are they, as Sanford C. Bernstein & Co LLC put it in a new research note, an "innocuous robot like R2-D2 or are they Terminator?"
To answer the question, Bernstein analysts opened multiple accounts at two prominent European robo-advisors, Nutmeg Saving and Investment Ltd. and MoneyFarm SIM SpA.
While they came away impressed with the accounts — one high-risk model portfolio was forecast to deliver at least 6% per year net of fees — they find it hard to believe that big industry incumbents won't break through what they see as low-barriers to entry for a growing industry.
Robo-advisors, which feature relatively low fees and an investing-on-autopilot approach, have so far been expanding as investors shift towards passive management strategies rather than active management which has been tarnished by a stigma of high commissions and lackluster performance.
"The robo-advice approach looks to have a rosy future, though not necessarily the current robo-advisors themselves," the team, led by Inigo Fraser-Jenkins, write in the note.
"Barriers to entry for the actual robo part are very low we think. So this may well be exploited by more established finance (or tech) brands with a broad distribution capability," they explain, adding that a number of large asset managers like Vanguard Group, Northwestern Mutual Co. and Charles Schwab Co. have already jumped into the space.
