Using computer programs, not brokers, to invest people’s money is still in its early stages, but estimates indicate that trillions of dollars will be manage that way in just a decade.
The US robo-advising industry could balloon to $5-$7 trillion assets under management (AUM) by 2025, according to a presentation from Deloitte’s head of wealth management, Gauthier Vincent.
Robo-advising—which relies on complex algorithms to manage wealth—is an up-and-coming area of financial technology: In 2015, robo-advisors had approximately $100 billion under management in the US, according to Deloitte. Traditional financial institutions are following pure-play robo-advisors like Wealthfront ($2.6 billion under management) and Betterment ($3 billion under management) into the growing the field. Deutsche Bank, Charles Schwab, and Vanguard have added their own robo-advising services over the past year, while BlackRock acquired FutureAdvisor in August. Bank of America plans to add an automated investing service in 2016.
Who’ll be flocking to these automated investing platforms? Primarily millennials. Deloitte says robo-advisors will capture 40% of the assets that millennials invest by 2025. The numbers are already skewing that way. Wealthfront told Quartz that 60% of their customers were under the age of 35. For firms like Schwab, the demographic is a bit older—it told Quartz there’s a relatively even split between customers under the age of 50, and over that mark.
The reasons are clear—automated services are cheaper and make wealth management services accessible to people who aren’t wealthy. Deloitte thinks the robo-advisors of today only scratch the surface. “In the future, we will have robo-advice on steroids —broader, more holistic advice powered by advanced analytics.”