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Deloitte research highlights plight of robo-advisory business model

Deloitte research highlights plight of robo-advisory business model

Research by Deloitte has found that funding for invest-tech platforms dipped sharply in 2019 to match a long-term slump in the number of new firms coming to market.

Deloitte's 'Driving innovation in investment management report estimates that invest-tech platforms' customer bases are heavily weighed to chasing younger clients, which demands high acquisition costs but low revenue.

Such customers carrying $20,000 in their account would offer $50 in revenue per year if a management fee of 0.25% was charged.

Deloitte estimate that robo-advisers would be faced with a five to 10-year wait just to break even on a client.

Against this backdrop, Deloitte's report finds that funding for invest-tech platforms fell sharply in 2019, having exploded to $2.8bn the year before.

As of 30 September 2019, funding totalled just under $1.4bn, with Deloitte pointing to a particularly busy Q2 for initial public offerings. The IPOs of Uber, Lyft and Slack all received a huge amount of attention in the financial world between April and June last year.

This downward tick is in correlation with a longer-term decline of new invest-techs coming to market, which goes back to 2015.

The trend is attributable to the invest-tech space getting the attention of incumbents, who have muscled in, either acquiring platforms through M&A or launching their own.

These methods are, according to the report, "much to the chagrin of some direct-to-customer pure-play robo-advisers", as customers of incumbents had no reason to look elsewhere for a digitally-convenient investment platform.


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