Australia's wealth managers lower fees as robo-advisory takes flight

HNW clients are losing trust that the traditional way yields the best returns.

Australia’s wealth managers are seeing heightened competition with robo-advisory services as the country’s rich become increasingly open to digital channels and spreading their wealth across different providers.

More than three-fourths or 76% of wealth managers in the country have lowered their costs or plan to lower fees to compete with robo-advisors, according to a survey by data and analytics firm GlobalData. This is higher than the global average of 61%.

“Our data shows that eight out of 10 wealth managers agree that HNW clients are increasingly fee-sensitive due to the rise in robo-advisor services,” said Heike van den Hoevel, senior wealth management analyst at GlobalData.

Adding to these is the fact that Australia’s high net worth (HNW) investors are now using an average of four different providers, data from GlobalData’s 2020 Global Wealth Managers Survey revealed. This meant that managers are likely only handling about a quarter of one HNW’s fortune.

As a result of these, wealth managers are not just losing market share, they are also seeing pressure in their margins compared to the low-cost business models of robo-advisories.

Loss of trust with traditional advisory channels, and loss of belief that traditional services yield similar or better returns than other options, were the two most cited reasons why Australian HNW investors are opting for robo-advisories, said van den Hoevel.

On the other hand, deterrents to robo-advisory take up include HNW investors’ desire to talk to a human advisor as well as digital advisory services’ limited investment range of services.

Van den Hoevel advices wealth managers in Australia to work on rebuilding trust to create better customer relationships.

“As long as an impersonal algorithm enjoys greater levels of trust, any fee reductions are unlikely to entice investors,” he noted.

“In addition, highlighting a positive track record and the benefits of a wide range of investments—especially as ongoing market volatility calls for greater levels of diversification—will be critical in retaining clients in the current crisis-plagued environment,” van den Hoevel concludes.

The 2020 Global Wealth Managers Survey was conducted in Q2 2020 across 19 countries and more than 730 wealth managers. In Australia, 20 wealth managers were surveyed.

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