There are two ways to make net profits – maintain a high margin and/or sell more volume at lower operating costs.
Asset managers find themselves in a low margin environment so the tactical and perhaps strategic path forward is to find volume at lower operating costs. The recent buy of Honest Dollar out of Austin, Texas by the Investment Management Division of Goldman Sachs is the continued direction of purchasing volume by buy side asset managers.
Overall asset managers are buying up robo advisors, not because they are overly threatened, but to expand the AMs existing client base. With automation AMs can add new clients at a relatively low operating cost and find an expanded demand side for their collective funds and ETFs. Look behind the scenes on any of the nascent robos and you’ll see all AMs product supply.
So the purchase of Honest Dollar is an early indicator that increased volume is in play. As Goldman stated, over 45 million Americans do not have access to employer-sponsored retirement plans. With targeting small businesses with less than 100 employees, utilizing automation and AM supplied ETFs and other funds a volume growing profit base is viable.
A major play of the automation of investment advice is increasing the total addressable market of investment consumers. The democratization of investing is being made a reality by the ready access to technology, but it must also be said that there is no correlation between democracy and actual wealth accumulation.