Here Come the Robot Advisors

How Software Automation Can Empower Traditional Financial Advisers to Give Better Advice


While the discussion around the benefits of automating some jobs continues, numerous businesses such as banks are already using software automation to improve operational processes and efficiency. The power of smart robots, which we at Cognizant refer to as Intelligent Process Automation (IPA), may in fact enhance today’s knowledge-based jobs and even create entirely new job categories. But how do companies view automation and how wide-spread is it already?

In our recent survey of more than 500 senior executives across the US and Europe, we found that, companies are currently automating, on average, between 25-40 percent of their workflows, which includes simple procedures and tasks with manual input. We also found that half of them see IPA as significantly improving their business processes over the next three to five years; nearly one fifth reported to have achieved cost savings of greater than 15 percent from IPA in just the past year alone.

With banks at the forefront of adopting software automation, one area that can be especially beneficial is wealth management, where providing prescient financial advice hinges on the ability to conduct real-time monitoring of risk

Enter robot advisors

In recent years, a combination of factors including rapidly developing digital technologies as well as changing customer demographics have led to a number of disruptive start-ups entering the wealth management arena. The rise of new financial vehicles, such as passive Exchange Traded Funds, enable these start-ups to offer automated services that make customers’ asset allocation decisions easier whilst also lowering costs. By providing their wealth management robots with a set of personal preferences and data including income, savings rate, and preferred level of risk aversion, clients get algorithm-generated advice that they may or may not choose to act on.

Robotic wealth management start-ups, such as Wealthfront and Betterment, use IPA to provide automatic asset allocation advice and have thus created a new business model that challenges traditional wealth managers. Consequently, the competition from disruptive start-ups have led traditional banks to start looking at possibilities to adopt similar models and technologies to maintain their competitive edge, especially with regard to catering to Millennials.

The changing face of bank customers

This year, Millennials’ income is expected to exceed that of Baby Boomers (i.e. people born in the 1940s-1960s). And by 2020, the collective income of Millennials is projected to exceed that of both Baby Boomers and Generation X. This influx of Millennials is dramatically shaping bank customer expectations. When it comes to wealth advice, Millennials do not place as much emphasis on person-to-person interaction and instead, they are much more comfortable making choices and decisions regarding their asset allocations online. As a result of changing demographics, the competitive landscape for banks as traditional wealth managers is evolving rapidly and financial institutions are now closely monitoring robot advisor start-ups and are considering selective investments in similar digital capabilities.

Software robots and the evolving role of wealth managers
Globalization has led to more variables for wealth managers to consider, requiring analysts to monitor an increasing number of factors that influence risk. These include not just global interest and currency exchange rates but also election outcomes, policy decisions, geopolitical events and more. However, instead of having to spend even more time closely watching information flow, wealth managers are turning to robots to develop their abilities to monitor risk for customers. In essence, they are using software automation for continuous monitoring of risk based on a variety of factors and are thus able to offer existing clients increased real-time intelligence as an added value service.

However, while mapping and forecasting risk and quantifying customer pathways has the potential to yield specific positive outcomes for wealth managers, such as successful cross-selling, it also requires actionable analytics. Companies in the banking and financial sectors indicate that 10 percent of revenue and 10 percent of costs are directly affected by how well they understand and use the business information available to them.

Data is the big reward for banks

While revenue, speed, efficiency and savings clearly drive banks to adopt software automation processes, the data generated by those same processes is potentially a bigger reward for banks and financial institutions in the long-term. With advances in machine learning, artificial intelligence and big data analytics, a bank’s ability to make predictions and offer tailored customer offerings can be greatly enhanced.

Across industries, the benefits of automation are obvious and there is a long tail of processes yet to be automated by a new generation of knowledge “robots”. As disruptive robot advisor start-ups transform the wealth management industry, adopting similar software automation services is quickly becoming a necessity for traditional banks. Nonetheless, in wealth management as in nearly every other industry, there are some tasks that robots just can’t do and that‘s where a blended model of automation augmenting talented people can provide extraordinary outcomes.

Future graph small

Read next:

Countering Credit Risk with PFE