For more than a year, LPL Financial examined different options on how to bring robo advice capabilities to its IBD network. In the end, they decided on BlackRock's digital platform.
Among the convincing factors, says LPL executive Robert Pettman, were confidence in BlackRock's technology and its brand – echoing the sentiments of other major institutions that have partnered with the asset management giant's robo, FutureAdvisor.
"When you look at all of the potential candidates out there," says Pettman, LPL executive vice president of investment and planning solutions, "we were attracted by the large institutional backing of a firm like BlackRock, versus going with a tech startup."
After lagging behind incumbent robo offerings, digital advice startups shifted from the costly effort of acquiring retail investors to offering their platforms as B2B solutions.
But even in this institutional approach, incumbents are enjoying an advantage.
The LPL deal "speaks to the strength of BlackRock’s reputation and the power of having an incumbent firm behind a business-to-business technology offering," says Sean McDermott, senior analyst in consulting services at Corporate Insight.
"This is the third major announcement of an established financial services firm partnering with FutureAdvisor, and it’s obviously no coincidence that each deal occurred in the months following BlackRock’s acquisition [of the platform]."
ROBO AGREEMENTS GROW
BlackRock made its $152 million deal for the Silicon Valley-based startup last August. Since then, its robo client roster has expanded. In February, RBC Wealth Management partnered with BlackRock to add robo tools for its 1,900 advisors. In early January, BlackRock and FutureAdvisor inked a deal to provide digital advice capabilities to BBVA Compass.
"I think all of the major financial institutions have realized that incorporating digital advice is a must-do in the next five years – the only question is whether to build it themselves, acquire someone or work with a third party," says Bo Lu, FutureAdvisor's chief executive.
Opportunity still exists for digital advice startups to pair up with smaller institutions and regional banks, as evidenced by San Francisco-based SigFig’s recent deal to make its robo advice platform available to customers at Cambridge Savings Bank.
Still, even for BlackRock, capitalizing on the these deals will depend on how advisors take to the offering, cautions Michael Kitces, Financial Planning contributing writer and a partner and director of research at
"BlackRock is netting $0.0 until the brokers actually go get [accounts] to put on the platform, which remains to be seen," Kitces says.
WAGON HITCH
BBVA Compass plans to build the FutureAdvisor software into all its digital channels and to begin rolling it out sometime this year. For customers who want more advice, a premium version of FutureAdvisor that comes with human investment guidance will be offered for 50 basis points.
Pettman says that LPL hasn't yet determined how FutureAdvisor will be structured, what fees will be attached to its robo advice, or what funds will constitute the offering, but notes that LPL research will "be at the helm choosing from the best of breed ETFs."
"We actually took a lot longer than we thought to get to this conclusion," Pettman adds. "Even as you look at working with BlackRock and FutureAdvisor, the level of integration is incredibly time-consuming. It is not just simply hitching a wagon to a robo advisor."
As for the platform's rollout, LPL will be using a group of financial advisors and institutions to test out the offering, marking LPL's August conference as a milestone, Pettman says.
"There are numerous types of clients who could use this," he says, from new investors and small investors to the tech savvy client. "This is a tool we plan on offering our whole advisor base, but it is ultimately their choice on whether they plan to use it or not."
WASTED OPPORTUNITY?
This is not LPL's first attempt to turn on a digital platform for middle-class investors.
NestWise was launched with much fanfare in April 2012. But LPL shuttered the operation over a year later because at the time it said the unit had not met growth expectations.
That was a wasted opportunity, notes Alois Pirker, research director for Aite Group's wealth management practice.
"They could have been here years ago with their NestWise effort and would own the platform now versus having to pay basis points on assets for renting one," Pirker says.
"Right now, the FutureAdvisor partnership puts them just a hair ahead of its competition – assuming we will see a lot more partnerships announced this year."
