Android robot sitting with a tablet computer
Online questionnaires by robo-advisers typically use responses to offer ways into low-cost portfolios © iStock

Who are the customers of tomorrow? This question is constantly being asked by far-sighted investors seeking to future-proof their portfolios and entrepreneurs hoping to spot that elusive gap in the market. But it is increasingly being asked by the wealth management firms providing both groups with financial advice.

Millennials — those aged between 18 and 35 — matter to the wealth management industry. In marketing speak I’ve heard several refer to prospective younger clients as “Henrys” — or “high earners, not rich yet”.

Those Henrys and Henriettas might not have much money at the moment, but they will one day — whether earned or inherited. In the past, picking a manager may have been decided on the strength of a 100-year-old brand name or simply choosing the firm their parents used. In the future, it will depend on technology, price and the overall ease of experience.

You might have heard of robo-advice and dismissed it as a fad or a gimmick. But as a non-robotic client of a wealth manager, you need to be aware that the old-fashioned fees you’re paying could well be cross-subsidising this leap into the future.

Algorithms are the robot’s tin heart. Online questionnaires typically start by asking, “What are your financial goals?” with further responses determining your investment horizons and risk appetite, which are translated into low-cost investment portfolios.

So why does it matter to you? Older clients could benefit from filtering their investments into two pots: those that require little or no advice (such as tracker funds or ETFs) and those that require more formal planning. Future investments into the former could easily be scooped up by an ultra low-fee robo-adviser.

Younger clients don’t want, and can’t afford, an annual meeting with an adviser talking about the relative pros and cons of emerging markets, bonds or structured products. They want simple guidance and 24-hour access. And they don’t want advice delivered in an office, they want an app.

This is the basic model behind online “pure plays” such as Betterment in the US and Nutmeg in the UK. Both companies are gaining traction not just with younger clients, but “mom and pop” investors looking to cut costs and time-poor professionals who want to manage their investments at a time that suits them.

Getting the technology and marketing pitch right is a costly investment, but the prize is being able to service greater volumes of clients for a fraction of the cost. Betterment came from nowhere in 2007 to amass nearly $4bn of assets under management today. Of course, this is a drop in the ocean in a US market estimated to be worth $30tn. But it is enough to worry the established wealth managers, which are spending money innovating for themselves or acquiring stakes in smaller robo-businesses.

So Google the name of your current money manager alongside the word “robo” to see if they’ve joined the burgeoning acquisition trail. If they have, play around with their digital offering. The level of pricing may shock you — with fees as much as 75 per cent lower — but see what you think of the functionality. Is it so different to the service you’re currently paying so much for?

Deloitte projects that by 2025, the robo-advice industry could have transformed into one that holds as much as $7tn of US assets under management. This will invariably put downward pressure on fees across the sector as firms compete for custom.

In future, I foresee that a hybrid model of part-robo, part-human advisory will evolve. Investors can benefit from the lower fees and digital efficiency that robo offers, but bolt on aspects of specialist face-to-face advice.

Many future customers might be younger, but the older ones need to get wiser and pickier about the services they are paying for.

Claer is thinking . . .

Could April be the month that the UK property bubble was finally pricked? Property investors face new, higher tax rates on purchases from April. We won’t know until we see the impact in sales data, but experts are predicting a slowdown and price falls. In London, where new housing developments are being aimed squarely at foreign investors, it is especially pertinent.

Claer Barrett is the FT’s personal finance editor

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