{"id":18959,"date":"2016-11-18T16:01:31","date_gmt":"2016-11-18T21:01:31","guid":{"rendered":"https:\/\/digital.hbs.edu\/platform-rctom\/submission\/fidelity-vs-the-robots-the-war-for-millennials\/"},"modified":"2016-11-18T16:01:31","modified_gmt":"2016-11-18T21:01:31","slug":"fidelity-vs-the-robots-the-war-for-millennials","status":"publish","type":"hck-submission","link":"https:\/\/d3.harvard.edu\/platform-rctom\/submission\/fidelity-vs-the-robots-the-war-for-millennials\/","title":{"rendered":"Fidelity vs. the Robots: The War for Millennials"},"content":{"rendered":"

Fidelity Investments, with $2.1 trillion in client assets under management (AUM), has become one of the firms synonymous with the investment management industry.1<\/sup> One of Fidelity\u2019s core services, retail advisory ($200 billion of AUM), pairs a client with a financial advisor; the advisor assists the client in putting together an optimal portfolio of investments based on the client\u2019s needs. Fidelity\u2019s retail advisory business model is predicated on access to superior investment products coupled with best-in-class financial guidance; Fidelity\u2019s operating model leverages financial advisors to manage the client\u2019s investments. However, a new generation of financial technology startups, dubbed \u201crobo advisors,\u201d have recently emerged and are challenging the premise of Fidelity\u2019s operating model by providing automated investment solutions at a fraction of Fidelity\u2019s cost. While Fidelity\u2019s business model remains intact, the robo advisors have exposed a critical weakness in Fidelity\u2019s operating model (particularly with millennial clients), leading Fidelity to develop its own digital retail advisory offering: Fidelity Go.<\/p>\n

While robo advisors are miniscule in AUM relative to Fidelity, the rise of the millennial generation helps to explain why robo advisors pose a threat to traditional investment giants like Fidelity. Per Deloitte, millennials, individuals who were born after 1980 and reached adulthood in the 21st<\/sup> century, are currently the largest of adult segments (approximately 40% of the global population); while millennials presently have limited investable assets, they are expected to enter their peak earning years in the near-term. However, millennials, given their experience during the financial crisis, are wary of financial institutions; yet, 84% of millennials have reported seeking investment advice, signaling a continuing demand for financial advisory services. Not surprisingly, millennials consider technology a critical component of financial advice.2<\/sup> Given the potential for future wealth creation by millennials, millennial preferences acted as a catalyst for digital innovation in the investment management sector, leading to the emergence of robo advisors.<\/p>\n

Robo advisors, such as Betterment and Wealthfront, have leveraged technology to make investing more accessible to the masses. As described by Betterment, a robo advisor \u201cis the automation of every task that\u2019s considered part of good portfolio management\u2026it does the job it was programmed to do: optimize investments, based on quantifiable research\u2026\u201d3<\/sup> Robo advisors eliminate the role of the human financial advisor, as the investor, based on his or her goals, is placed into one of several pre-designed portfolios\u2014most importantly, these portfolios require no human intervention or management. By eliminating the role of the advisor, robo advisors have significantly driven down the cost to investors: robo advisor fees range between 0.15-0.35% of AUM versus 1% of AUM for traditional investment managers.4 <\/sup>Based on experience to-date, researchers project that the robo advisory industry will \u201cgrow to at least $255 billion in managed assets over the next 5 years \u2013 up from $14 billion in 2014.\u201d Not one to miss out on a major opportunity, Fidelity made the decision to challenge robo advisors at their own game.<\/p>\n

In July 2016, Fidelity launched \u201cFidelity Go,\u201d which was billed as \u201can advisory solution for digital first investors.\u201d5 <\/sup>As the description suggests, Fidelity acknowledged the importance of a digital operating model to stay (or to become) relevant to millennials.6<\/sup> As such, Fidelity Go emerged as a digital-first and low-cost (0.35% of AUM) investment solution for millennials: a direct competitor to the robo advisors. Like other robo advisors, Fidelity Go places clients into pre-designed portfolios based on the client\u2019s goals. However, Fidelity, importantly, notes that its portfolios are constructed, monitored and rebalanced by investment professionals<\/em>, not an algorithm; by doing so, Fidelity is leveraging its core investment capabilities to differentiate its offering relative to that of other robo advisors.<\/p>\n

As Fidelity Go only launched in July, it is too soon to evaluate the success of Fidelity\u2019s digital operating model. However, as one of the largest investment managers, Fidelity could have chosen to ignore the robo advisor trend and continued to focus on its core business model; yet, Fidelity instead chose to embrace digitization as a means to remain competitive with a new generation of potential clients. As robo advisors and their venture capital backers are waging a war of innovation, Fidelity will need to continue to invest in its digital platform to stay competitive. Further, Fidelity needs to win mindshare with millennials, promoting its brand above that of other robo advisors. While the robo advisors may have a first mover advantage, Fidelity appears determined to win the war for millennials. (731 Words)<\/p>\n

    \n
  1. Fidelity Investments, \u201cAbout Fidelity,\u201d https:\/\/www.fidelity.com\/about-fidelity\/overview\u201d, accessed November 2016.<\/li>\n
  2. Daniel Kobler, \u201cMillennials and Wealth Management: Trends and Challenges of the New Client,\u201d Inside (Deloitte), June 2015.<\/li>\n
  3. Betterment, \u201cWhat is a Robo Advisor,\u201d https:\/\/www.betterment.com\/resources\/personal-finance\/goals-and-advice\/what-is-a-roboadvisor\/, accessed November 2016.<\/li>\n
  4. Falguni Desai, \u201cThe Great FinTech Robo Advisor Race,\u201d http:\/\/www.forbes.com\/sites\/falgunidesai\/2016\/07\/31\/the-great-fintech-robo-adviser-race\/#70b451f43812<\/a>, accessed November 2016.<\/li>\n
  5. Fidelity Investments, \u201cFidelity\u00ae<\/sup><\/strong> Launches Fidelity Go: An Advisory Solution for “Digital First” Investors,\u201d July 27, 2016, https:\/\/www.fidelity.com\/about-fidelity\/individual-investing\/fidelity-launches-fidelity-go<\/a>, accessed November 2016.<\/li>\n
  6. Theresa Carey, \u201cFidelity Launches Robo-Advisor,\u201d http:\/\/www.barrons.com\/articles\/fidelity-launches-robo-advisor-e-trade-buys-optionshouse-1470459728, accessed November 2016.<\/li>\n<\/ol>\n","protected":false},"excerpt":{"rendered":"

    Fidelity Investments, one of the world's largest investment managers, is being challenged by robo advisors, start-ups focused on digital investment solutions, for the investment business of millennials. In response, Fidelity embraced digitization to remain competitive. 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