UBS's purchase of US digital wealth manager Wealthfront – one of the largest such deals in recent years – highlights a battle for market share in the mass-affluent/HNW space, particularly where younger adults are involved.

The vast majority of US wealth managers polled by GlobalData say they expect robo-advisors to eat market share in the next 12 months, highlighting why large established firms such as UBS have bought digital platforms to remain relevant.

GlobalData’s 2021 Global Wealth Managers Survey found that, among US wealth managers, 84 per cent believe that their market share will be eroded by robo-advisors in the next 12 months. 

The COVID-19 pandemic accelerated the digital transformation of the wealth space, and the acquisition of Wealthfront by UBS is another example of how valuable digital services are post-COVID-19, GlobalData, a data and analytics company, said. 

In order to acquire more of the mass-affluent space, last year UBS bought Wealthfront, the digital wealth manager.

Wealthfront has more than $27 billion of assets under management and over 470,000 clients in the US, mainly concentrating on Millennial and Gen Z investors – a crucial market as the Baby Boom generation passes on.

Traditional players have decided to take a shortcut to a robo-advice proposition via acquisitions and partnerships, as opposed to the time-consuming route of an in-house approach, GlobalData said.

“As much as the acquisition reinforces the notion that robo-advice is here to stay, many standalone players are yet to become profitable, including Wealthfront,” Sergel Woldemichael, wealth management analyst at GlobalData, said in a note.

The cost of acquiring clients remains a big concern, even for players that have reached AUM in the billions of dollars, Woldemichael said. “Therefore, if major players such as Wealthfront and Nutmeg are open to being bought, it does not leave much hope for new robos looking to launch or current standalone players. In addition, many robo-advisors have closed down over the years. This includes UBS’s SmartWealth, which failed to attract its target market in the UK due to pricing and brand relatability issues.” (He referred to the decision by UBS in 2018 to sell its SmartWealth business to US-based online investment advisor SigFig. At the time it appeared that the bank had pulled out of moving into such a channel.

Last year JPMorgan Chase UK acquired robo-advisor Nutmeg, while the year ended with Santander announcing a partnership with technology specialists SigFig on a robo-advisor.

“Such moves are a smart way for the old guard to attract the younger generation and mass affluent individuals. Wealthfront will benefit too as it can leverage the prestigious UBS brand. Other wealth managers will take a similar approach, purchasing robo-advisors as opposed to building a service in-house. Likewise, more robo-advisors will be looking to tie up with an established financial powerhouse in order to ensure their longevity,” Woldemichael added.

The share-trading drama last year over US video games retailer GameStop, and other firms, threw into sharp relief the use of new digital trading platforms, including those catering to DIY clients and a younger generation not beholden to traditional wealth models.