2020 robo advisor market—challenges in the wake of the coronavirus crisis Interviews with robo advice providers on the current situation

The coronavirus crisis continues to pose new challenges for the still fledgling robo advisory industry. In the last two years, robo advisors have been able to increase their customer base in Germany by approximately 50% per year (albeit declining). It is questionable, however, whether robo advisors will reach these figures in 2020, considering that they have yet to achieve even one percent market penetration.

So we asked ourselves how robo advisors have made it through the coronavirus crisis…

… Robo advisors were launched with the aim of digitally revolutionizing asset management. Today’s robo advice market features providers from traditional banks and independent start-ups. Even in regular operation, communication takes place exclusively via telephone, e-mail and chat. Has this given robo advisors a competitive advantage in the coronavirus crisis and do they expect more new business in the future, or will the severe market slump in the wake of this crisis lead to a consolidation of the industry, because in the medium term no one will be investing anymore?

Robo advisors bevestor, Diversifikator, ginmon, growney, investify, Kapilendo, quirion and VisualVest have answered these and other questions in our large interview series:

How has the coronavirus crisis affected your business so far? What are your biggest challenges right now?

Kapilendo: (…) One challenge was to hold one-on-one conversations with as many customers as possible and to discuss possible effects on their portfolio and reasonable next steps. Even though we had some very intense weeks, these talks have brought many positive results.

growney: At the beginning, our customers asked us a lot of questions about this topic: from “Can you actually work in the current environment?” to “Is my money safe?” to “How can I sell my shares?”. Only one week later, the questions changed to something like “How can I use the weakness of the market to invest?”. Fortunately, since the outbreak of the crisis we have had considerably more deposits than withdrawals and continue to gain many new customers every day. (…)

investify: (…) We believe that the crisis is confirming our business model: digitalization and outsourcing of regulatory activities are becoming more and more important in the financial sector, also due to the consequences of the coronavirus crisis.

VisualVest: (…) we have been able to increase our AuM since the beginning of the crash. The reason for this was that many investors regarded the low prices as an opportunity to open a new securities account or make a new deposit. In addition, numerous savings plans ensure that our AuM are rising steadily. The biggest challenge is to reassure investors and to strengthen their confidence in us. (…)

How has the coronavirus crisis affected your customers’ return? How would you rate yourself compared to your competitors?

VisualVest: (…) As a consequence, the first quarter saw significant losses. Our balanced portfolio of classic ETFs (VestFolio 4) ended the first quarter with a loss in value of -10.24%. Our GreenFolios, portfolios of purely sustainable funds, performed slightly better in the first quarter. The largest losses were incurred in shares and commodity asset classes. The fixed-interest bond segments of corporate bonds and the emerging markets also reported extremely negative performances. Only classic government bonds were able to profit from the coronavirus crisis as a safe haven. (…) Since the beginning of April, a significant recovery has taken place across our entire range of portfolios. (…)

growney: One investor who has invested at the highest prices in our riskiest portfolio is currently lagging about 18% behind. The customer who at the same time invested in the lowest risk level currently suffers a loss of 5.5%. This result compares very well with our competitors and with our benchmark, the MSCI World.

bevestor: If you look at independent performance comparisons of robo advisors, in 2019 we reached top ranks. With regard to the very short observation period of the price distortions, we have moved into the front midfield of providers.

quirion: (…) even though our portfolios were of course also affected by the coronavirus crisis. The customers have reacted very prudently. Presumably because they also understood that digital asset management is not a trading product. (…)

Diversifikator: Portfolio returns were poor in absolute terms, but good compared to benchmarks and competitors. This is especially true when compared to actively managed funds. In the crisis, simple trend-following portfolios in particular, but also ESG and impact portfolios have proven successful.

investify: In February and March, our customer portfolios were also affected by the severe financial market distortions from which they could not be fully protected. In April, however, they benefited from the resurgent stock markets and were able to significantly improve their performance. On the whole, we and our customers have ridden out the crisis better than the vast majority of our competitors—focusing on quality has literally paid off.


In the wake of the coronavirus crisis, our authors spoke in detail with robo advisors about the robo advisor market and the impact of the crisis on the robo advice industry:

To the interview series with the Robo Advisors


What medium to long-term risks do you expect the coronavirus pandemic to pose for you and the robo advisory market in general?

 

ginmon: This crisis could involve existential risks for some of the independent robo advisors. Consequently, we could definitely imagine a situation in which providers who are funded by large product suppliers in the background dominate the post-crisis market. This would be a great pity, as it would mean abandoning the mission that independent providers undertook when starting out, that is providing independent, transparent asset management that is always in the best interests of the customer.

bevestor: (…) Our economists are currently expecting a U-shaped recovery phase on the markets. We are therefore quite positive about the long-term prospects of the markets. We do not believe that an exogenous shock like the coronavirus pandemic will have a lasting negative impact on the robo advice market.

Diversifikator: The distribution of B2C offers remains the biggest problem and now financing conditions have also become more difficult. However, neither type of problem affects Diversifikator.

investify: We and our B2B partners hope that the crisis will not permanently paralyze the already weak securities business in Germany.

Kapilendo: We are concerned to see that many competitors have failed in the crisis. This may reflect badly on the industry. It is more important than ever that savers abandon non-interest-bearing call money and start looking for cost-effective and convenient investment solutions.

What opportunities could arise from the crisis?

Diversifikator: Robo advisor technology is increasingly being used to distribute ETFs and other funds. Dissatisfaction with expensive active portfolios has increased further and ESG and impact strategies are now considered to be attractive even in difficult markets. Passive and responsible offers, also from robo advisors, will therefore face an (even) higher demand in the future.

quirion: (…) Customers and people interested in the service recognize that robo advisors are good and inexpensive—in contrast to actively managed funds, which are expensive and do not beat the market in the long term.

VisualVest: (…) The current crisis has cemented the low interest rate environment for an indefinite period of time and therefore all the more increases the need for private savings and retirement products with investment funds, through which investors can benefit from the return opportunities of the capital markets. Digitalization is also progressing even faster as a result of the coronavirus crisis—both for private customers and for companies. In the long run, this will increase the acceptance of digital offers such as VisualVest.

ginmon: Providers who have digitally structured their sales and products are benefiting from the lockdown. Many customers will now experience the advantages of digital providers, such as the digital opening of accounts or the transparency and permanent availability of an online customer service center. This could lead to a permanent rethink among many customers.


In uncertain times it is more important than ever that financial services providers remain good partners for their customers and present themselves as part of the solution. You can find further information on here.



Interviews with robo advisors on the their investment philosophy, strategy and USP as well as the current market situation and the coronavirus crisis

Overview of the individual interviews:


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