‘No money in robo-advice’, says QuietGrowth
Robo-advice firms are struggling to generate profit due to low fees and the difficulty in gaining clients, says QuietGrowth.
Speaking to ifa sister publication Adviser Innovation, Dilip Sankarreddy, founder of automated investment platform QuietGrowth, said "no one is making any money" out of robo-advice.
He said that due to considerably low fees, in order to generate $500,000 in revenue, a robo needs to have approximately $100 million in assets under management (AUM).
Mr Sankarreddy added that to grow a robo's client base, constant investment is needed to enhance the advice tool.
"You need to build an even better product, and you need to spend money to get the word out," he said. "You have to reinvest more to make the product good. We are speaking of millions of dollars here."
Mr Sankarreddy said his firm is "in it for the long-run" and is confident that with time and further investment, it will begin to generate profits.
Still, servicing existing clients is an additional expense, he said.
"Even though we say that we are in the automated industry, people do call or email you. We have to engage with them and that costs money."
Trust, he added, also needs to be established and maintained with clients. If the robo-advice tool does not function seamlessly, trust is unattainable. This, again, requires constant investment, he said.
Mr Sankarreddy pointed out that in order to grow a robo-advice firm's client base – and the tool itself – external sources of capital must be found.
For the "kinds of goals" his firm has, venture capital will need to be considered, he said.
Mr Sankarreddy concluded that high costs and small gains are the reality of robo-advice. This is not negative, "but a realistic perspective of what it takes to get there", he said.
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