A report by KPMG, focusing on the US financial market, sees rapid growth in the assets, and business value, of the robo advisor sector.

Assets held in “digital advice” business models, aka “robo advisors”, are forecast to explode to $2.2 billion by 2020, from an estimated $55-$60 billion at the end of last year, according to KPMG in a recent US-based study of this disruptive wealth management area.

The value of the robo-advice market will be around $500 billion by 2020, the report said.

Increased demand for transparency on fees, ease of use and the availability of cheap investment tools such as exchange traded funds have driven the robo-advisory market. With rising regulatory costs hitting conventional wealth managers, robo advisors are seen as filling advice “gaps” in the US, Western Europe and Asia. These business models are part of a larger story of how financial technology is seen as overturning traditional banking and financial services.

Respondents to the survey (a total of 1,500 banks clients were interviewed) were asked what robo features they most liked. Account aggregation is top of the list; 73 per cent of participants rate a 4 or 5 on the attractiveness scale. Investors also strongly desire a unified view from their robo advisor of their banking, trust and brokerage accounts through a single sign-on experience via Web and mobile. Even better is having the option to also view accounts at other custodians.

The second most attractive feature is auto investing, the survey showed. Clients want the option to automatically transfer a set dollar amount or percentage from their savings or checking account into their investing account and have it automatically allocated across all holdings. This ability to move money between accounts is a core banking capability that can enable bank brokerages to differentiate their services from many of the digital disruptors, the report said.

Another attractive feature to customers is the ability to consult a financial advisor about their investment approach and other financial matters. This suggests that digital advice services are not a “one-size fits all” model; there are opportunities to develop hybrid models–like Vanguard’s PAS–that combine the best of high-tech and high-touch.

Some of the report’s were startling. For example, the organisation said it found “relatively low awareness” (8 per cent to 15 per cent) of the robo advising services of SigFig, Betterment, Wealthfront and FutureAdvisor.

However, some larger, established players are raising their game. Approximately half of respondents knew of Schwab’s Intelligent Portfolios and Vanguard’s Personal Advisor Services (PAS).

To illustrate what it at stake, KPMG said, Blackrock, the world’s largest asset manager, recently acquired FutureAdvisor, a US firm, for a reported $150-200 million sum. JP Morgan recently announced a partnership with Motif Investing to offer retail clients access to IPOs for as little as $25010. And in June, Pershing, the largest correspondent clearing firm, announced a deal with Marstone, which created a tool to help advisers engage and retain client assets as they transfer to a younger generation expected to soon be worth $30 trillion.

In the UK, Schroders has invested into the UK robo advisor firm Nutmeg, seen as a way for the venerable firm to test out the value of these new technology-driven platforms.

Robo advisors range from “pure-play” models to those with some human interaction, with the latter known as “hybrid” robo advisors (see an article about the issue here).

Banks must not miss out
“Our findings show that interest among existing banking clients is high, and banks would be remiss to ignore the opportunity to add robo advising to their product portfolios. Across generations, income, and gender, more than 75 per cent of respondents indicated they would be “very likely or somewhat likely” to consider the above offer from their bank, with 22 percent selecting “very likely”, the report said.

“Furthermore, we found that 80 percent of millennials (age 18 to 34) said they would be `very likely or somewhat likely’ to consider the described robo advising product -the highest level of interest among all surveyed demographic groups,” the report said.

It added that such findings were inconsistent with previous research that found that 71 per cent of millennials “would rather go to the dentist than listen to what banks are saying”, it continued.