Wealth Management Firms Brace for AI-Powered 'Carnage'

JJohn August 5, 2023 2:27 PM

Artificial Intelligence (AI) is poised to cause significant disruption in the wealth management industry, leading to a surge in asset management companies' consolidation. This revolution, driven by robo-advising, is forcing industry players to adapt or risk being phased out.

AI causing upheaval in asset management

Artificial intelligence's rise in wealth management is going to instigate significant changes, with a PwC survey suggesting that as many as one in six asset and wealth management firms will either be acquired or shut down within the next five years. This prospective 'tech carnage,' as industry insiders call it, is fostered by the increasing role of AI and robo-advisors in the field. Smaller firms are under pressure to consolidate their operations and invest heavily in emerging game-changing technologies, or risk being replaced.

Robo-advising, powered by sophisticated AI models, is an emerging game-changer in the wealth management industry. These AI-driven platforms prepare investors for wealth-building strategies and retirement planning. Big names in the industry, including Vanguard, Schwab, Fidelity, Betterment, and Acorns, are already investing in and offering robo-advising services. The technology's adoption is expected to make these firms even stronger, given they have the vision and resources to execute it.

Robo-advisors to manage $6 trillion by 2027

The adoption of robo-advisors is projected to skyrocket in the coming years. PwC predicts that these AI-enabled platforms will be managing a staggering $6 trillion by 2027. The growing trust in digital investment advice among investors is prompting money management firms to pool investments in technology to navigate the future and survive the increasing competition.

The escalating AI revolution in wealth management has seen an 11% increase in mergers and acquisitions (M&A) activity in the industry last year, the highest in at least a decade. Notable transactions include Royal Bank of Canada's takeover of Brewin Dolphin, HUB International's acquisition of WealthPlan Advisors, and Alera Group Wealth Services' buyout of Johnson Brunetti. This surge in consolidation underlines the firms' readiness to pool resources and investments in disruptive technology to stay competitive.

AI disruption: A survival of the fittest

The AI disruption in the wealth management industry is reminiscent of the shift toward passive investing through ETFs. This evolution led to the downfall of many actively managed funds, forcing them to consolidate in an attempt to scale their expenses and survive. Similarly, the ongoing AI revolution is expected to be a 'survival of the fittest' scenario. Wealth management firms that fail to embrace the changes and adapt to the emerging trends risk being left behind.

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