Cresto Narang Wealthfront.pdf
robo-advisors because they can make large marketing investments. In addition, they might
step in and become new entrants if robo-advisors proves to work in the long term.
Moreover, the costs of moving back to established investment manager is quite low. These
elements increase threat from substitutes. On the other sides, there is more attrition
between investors and major financial services firms. This might help robo-advisors to gain
market share and persuade investors to place money on automated platforms.
From 1 to 10, the threat from substitutes is very high and ranks at 9 out of 10 and it is likely
There are two major kind of suppliers.
Suppliers of IT infrastructure: they do not seem to have a major contractual power
because suppliers are not concentrated and they sell commodity-like products.
Suppliers of financial data: they might have more contractual power because there
are not a lot of providers of financial data. Suppliers include Bloomberg and Reuter.
From 1 to 10, the threat from suppliers ranks at 4 out of 10 because the real threat may
come from provider of financial data, but this does not seem to be very serious. This is
expected to remain flat.
At this stage of the market, clients are not concentrated and invest relatively small amount
of money, when compared to asset invested in major investment management companies.
Fares are usually standardized for small investors, and regulators forbid investment
management companies from treating customers differently. Once the assets under
management increases and investors will become more concentrated and powerful, it is
possible that fares might change in order to accommodate large clients, but for the
moment, clients don’t seem to have a major contractual power. On the other hand, it is
quite easy for customers to switch investment manager.
From 1 to 10, the threat from clients ranks at 6 out of 10 and, if the market proves to work
and become bigger, this threat will be higher.
The regulation in regards to investment management is quite strict and it is possible that, if
the robo-advisors market becomes bigger and more important, the focus of regulators will
increase. There does not seem to be a specific law that can prevent players to enter the