Robots are an ETF’s new best friend – or are they?

Some in assets management need persuasion

N E W Y O R K • It’s time for exchange-traded funds to start wooing the robots. But the asset management industry isn’t quite so sure.

Automated advice platforms — known as robo advisers — are poised to expand their investments in ETFs over the next five years, boosting their assets to more than US$800 billion, according to a report by PricewaterhouseCoopers. Overall, digital advice is likely to grow to US$1 trillion by 2020, a separate study by Aite Group showed.

Robos, which include independents such as Betterment LLC and Wealthfront Inc. as well as platforms from the likes of Vanguard Group Inc. and

currently oversee about US$75 billion. PwC’s prediction is based on growth rates from 2015 to 2016, while Aite used data submitted to regulators and interviews with large incumbents.

“You’re going to see a real acceleration,” said Nigel Brashaw, PwC’s global ETF practice leader. “Once you start seeing technology increasingly take hold, it’s something that’s not going to go backward.”

But many asset managers cost. Unlike a traditional adviser who might require hundreds of basis points a year to choose investments, robos use answers from a series of online questions and some sophisticated algorithms to provide the same service for little or no fee. This handsoff, cookie-cutter approach is cheap, and using low-cost ETFs to execute the strategy ensures that management fees won’t eat into the savings.

Many ETF issuers and other asset managers are illprepared for this shift. About 55 per cent of those surveyed by PwC see robos sending less than US$50 billion into ETFs,