Stiff Competition Leading to Commoditization of Services Launched by Online WM firms - What is the future?
October | 2014
Traditional wealth managers (WM) have been providing wealth and asset management services to individuals and institutions till date. For their services, these managers charged a fee that ranged from 1% - 3%. In some cases, investors pay more compensation to their asset managers than their real value-add. According to the Simon Lack reports in The Hedge Fund Mirage, during 1998 to 2010, investors earned only $70 billion in the form of investment gains as compared to a whopping $379 billion earned in fees by the hedge fund managers.
Today, with rapid use of technology and software programs powered by carefully thought and designed quantitative investment algorithms, online WM firms are able to provide WM services for a fraction of the cost. They charge the client anywhere ranging from 0.15%-0.35% of AUM, which is nearly one-third the fee charged by the traditional WM.
This should mean investors flocking the online WM firms to benefit from the low cost of service. Is it really the case? Will wealth managers be out of service in the near future? Is a pure play online WM the future of wealth and asset management services?
It will be interesting to find out how each player beats the competition and pose a business challenge. It will also be exciting to see who wins the battle – the traditional players or the online WM firms; or will it be a fine balance between the both resulting out of acquisitions and mergers?
Share with us your views on this paradigm shift.
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