Two new deals for the leaders in digital advice show how the space is becoming tougher for trailing competitors, observers say.
Last week, Betterment and BlackRock announced new partnerships the same day —BlackRock’s FutureAdvisor inked a deal with the fifth-biggest bank in the U.S., while ride-sharing giant Uber tapped Betterment to offer its drivers IRA savings plans.
Firms seeking digital advice options are betting on the names they know and the ones perceived to be the most successful, says Alois Pirker, research director for Aite Group's Wealth Management practice.
"We see a narrowing of players," Pirker says. "At this point they probably have one of the stronger positions in this space."
COSTLY PRESSURE
For BlackRock's digital advice offering, the deal with U.S. Bank is the fourth it’s penned, after announcing partnerships in recent months with BBVA Compass, RBC Wealth Management and LPL.
Meanwhile, the Uber deal comes a month after Betterment announced it had crossed the $5B AUM mark, the first independent robo to do so.
Bill Winterberg, founder of FPPad.com, says the deal is "a shrewd marketing strategy for Betterment, one that I feel will yield a big positive return over what they may or may not have paid to broker the partnership."
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The firm's decision has advisers and clients questioning the investment policies and maturity of the digital platform.
June 29 -
The robo adviser expands its offerings and is developing a memo to answer concerns after the firm temporarily suspended trading the morning after the Brexit vote.
September 14 -
Robo advisor seeks to add a piece of the $4.6 trillion market to its business.
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It also puts costly pressure on competitors in the retail digital advice space, Winterberg adds.
"They have to, one, spend more money on marketing and customer acquisition, or two, broker their own partnerships to get their brand positively introduced in front of hundreds of thousands, or millions, of potential customers," he says. "Those partnerships, in my opinion, cannot be inexpensive."
'UNPRECEDENTED SCALE'
Betterment spokesman Joe Ziemer declined to discuss details of its partnership with Uber, but noted it didn't guarantee a specific number of Uber drivers would sign up.
Still, Ziemer says the deal offered his firm great potential. The option will be available to Uber drivers in Seattle, Boston, Chicago, and New Jersey, with plans to expand to other cities later this year. Fees for the account will be waived for the first year, depending on the account balance.
"I'm not sure we would structure another partnership like this one," Ziemer says. "Uber offers unprecedented scale."
"Those partnerships ... cannot be inexpensive."
Pirker says despite the deals, digital firms should be paying attention to what happens in the near future. For asset managers offering digital advice platforms, he says, implementation is key.
"A lot of it is depending on what those firms do with these digital advice platforms, and what business models develop around them," Pirker says. "Right now they are prototyping. If the first landmark implementation rolls out and shows traction, they will have more deals coming down the pipe."
