McKinsey & Company's 2023 report WealthTech in Asia-Pacific: The next frontier in financial innovation contains several insights (1). As I read the report, I wondered if this would finally be the big, explosive growth robo-advice had hoped for 10 years ago.
Robo advice has seen robust growth in the US over the last decade or so, but probably not as much as the hype would have predicted when it all started. Many of the direct to consumer robo advice companies either pivoted, pirouetted, or perished. But things could be different in Asia-Pacific.
McKinsey's report suggests that affluent investors in Asia, those with $100k-$1mm personal financial assets, will grow to $28 trillion by 2027, a compound annual growth rate of 8%. That is a lot of growth and the Asian affluent is decidedly under-advised compared to their US counterparts. McKinsey estimates the number of Asian affluent currently getting advice is only 15-20% compared to an estimated 43% for US affluent (2). To the extent that the segment grows 8% per year and the advisor penetration rate increases to 22-27% by 2027, as McKinsey suggests, we could see a double-whammy growth rate in advice demand. It seems to us that this sort of spike in demand requires a similar spike in the number of advisors. However, it can take time to get new advisors online in terms of training, expertise, and client base.
In the face of too few advisors, it could be that a good part of the demand goes to digital advice, at least as a first step. This could represent significant growth for robos. McKinsey estimates that assets under management for digital advice will grow from around $150-200 billion at the end of 2022 to $650-750 billion in 2027, 4x in just 5 years when measured from the midpoints. This is a compound annual growth rate of 32% vs an estimated 14.6% for the US robo segment (3).
Of course, 14.6% is strong growth, but 32% per year sounds transformative. I think it is very defensible that the hybrid model of digital advice will do well and all players should be gearing up for that. What is less difficult to predict is how well the direct to consumer channel will do, but there is a case to be made that it will do well and finally "make it" as a real wealth management alternative for the affluent.
1. McKinsey & Company. "WealthTech in Asia-Pacific: The next frontier in financial innovation." October 2023
2. Cerulli Associates. “Affluent Investors Are More Reliant on Advisors Than Ever Before.” October 17, 2023
3. Staticia. "Robo Advisors - United States." August 2023