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Morningstar Presentation Robo Advisor June 2018

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Robo-Advisor Upgrade! Installing a Program for Profitability:
Digital Advice Raises Profits for Investment Services Industry

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We agree that there’s much to be skeptical of with the original robo-advisor business model. In fact, we wrote in 2015 about the challenging economics, how many stand-alone robo-advisors wouldn’t survive, and robo-advisors integrated with established financial institutions would leapfrog the early leaders. However, new business models are addressing the three faults of the original robo-advisor model: high client acquisition costs, ongoing costs of servicing clients, and low revenue yield on client assets. Lead-generation tools and strategic partnerships are reducing acquisition costs, while building for scale and operating leverage eventually solves service costs. Revenue-enhancement strategies underpin much of our optimism for select robo-advisors becoming profitable. Upselling to human advice, ancillary service offerings, and incorporating proprietary products in portfolios are key revenue drivers.

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