Updated with correction
The spate of money managers either launching or buying stakes in robo-advisers over the past few years — BlackRock buying FutureAdvisor; Vanguard Group Inc. launching Personal Advisor Services; Fidelity Investments unveiling Fidelity Go; and WisdomTree investing in AdvisorEngine, to name just a few — is a sign that the retail and wealth management industry is becoming more automated and reliant on artificial intelligence.
Sources that Pensions & Investments spoke with noted large asset managers investing in robo-advisers doesn't mean managers are moving away from institutional assets. Rather, the trend indicates managers are looking to ensure they're as up-to-date as possible with the current technology and service models that have entered the marketplace for both their retail and institutional platforms.
Industry experts also say they expect to see the institutional asset management sector adopt automated advising technology, but not quickly.
“It's really, really early days,” said Jeffrey Levi, principal at money management consultant Casey Quirk, a practice of Deloitte Consulting LLP, Darien, Conn., on institutional investors adopting similar automated technology.
Mr. Levi predicted investment automation technology will eventually play an increasing role in the outsourced CIO business as a means of reducing the overall cost of managing a portfolio.
The Casey Quirk executive said most robo-advisers are focused on highly liquid asset classes where good beta exposure exists, such as long-only equities, long-only fixed income and cash. So, for institutional investors that only want to invest in those securities, Mr. Levi believes this automated advising technology would a good fit.
What will drive this appetite from institutional investors is the increased desire for transparency, the desire to reduce costs and skepticism about active management's ability to deliver outperformance.
“As these robo-advisers advance their capabilities, they'll be able to provide an interesting set of real-time data analytics that will rival any player today,” he said.
Ultimately, Mr. Levi speculated that with some small pension plans already using some form of automated advising technology, widespread adoption of the technology from institutions could be three to five years away.