It's been a decade since the launch of the industry's leading independent digital advice platforms — Betterment, Wealthfront and Personal Capital.
The question that now remains for all three: who will cross the IPO finish line first?
The companies continue to churn the possibility of going public, while raising millions in additional funding. But there are doubts around the market viability of automated advice's aging upstarts.
In terms of assets, the trio has kept their positions in the market respectively, with Betterment leading all independents with over $10 billion in AUM, followed by Wealthfront's $7.4 billion and Personal Capital's $4.9 billion.
Collectively, the three count just over 420,000 clients and over 548,000 accounts, according to SEC filings and company statements.
Personal Capital, which always tailored its services for HNW clients before lowering its account minimums (
It was Wealthfront though stirring the IPO pot again, with spokeswoman Kate Wauck
"Wealthfront's goal has always been to build an independent and innovative financial services company that helps millennials save and invest for the first time, then grow with them [until] their retirement," Wauck replied in an email.
Betterment, which last month
"We're going to get to IPO eventually," he told the audience at InVest.
And despite
“We’re a white hot company in a red hot space, so naturally, going public is an option, but we’re not distracted by it," Shah stated in an email. "We remain focused on the fundamentals of serving our clients and building a valuable and growing company.”
DEFYING EXPECTATIONS, ROBOS POWER ON
Such optimism is testament to how robo advisors have endured, despite industry sentiment.
The market early on predicted that funding would dry up for robo advice platforms and presage
That's been proven wrong, as investors have continued to open their wallets for the top three independents, (over $600 million in total funding to date for Betterment, Wealthfront and Personal Capital) as well as
"Going public is an option, but we’re not distracted by it," says Personal Capital CEO Jay Shah.
Still, incumbent offerings have
"I continue to think the real robo advisor winners will be the multi-dimensional firms like Vanguard and Schwab," says Chip Roame, managing partner for Tiburon Strategic Advisors.
Roame is still
Roame chalks up the ongoing funding to investor exuberance. "Everyone thinks they will be the one to make it big. Every VC firm feels the need to back some firm. One can’t be left out!"
'CAN'T BE UPSIDE DOWN'
The performance of incumbent digital advice platforms versus independent offerings should weigh on any investor's outlook, says one venture capital executive whose firm invests in fintech. But he also held out that the market could support an independent robo reaching IPO.
"Is digital advice an interesting enough asset? Yes. Can they achieve the objective of their investors? I don't know. Does a Wealthfront or Betterment have enough breadth as a business to interest investors from a public market standpoint? Right now they are showing exponential growth with a small base. Can they sustain that growth?
There is a compelling investor story for robos, he acknowledges: the ideals of democratizing advice and making wealth management more efficient.
But one issue, he says, is that robo advice "is still a to-be-proven business model."
What investors will focus on are client acquisition costs, he says. "You can't be upside down on these transactions. Eventually you have to show these things make money on a per unit basis."
Wealthfront's Wauck says the firm is "incredibly conscious of our unit economics and keep our burn rate lower than any of our competitors," but did not provide financial details. It last raised $64 million in Series D funding in 2014.
"Our growth has been almost entirely organic — a point that is counterintuitive to an industry that has historically been sales and advertising heavy," Wauck says.
"Growing organically is instinctive to us because we model ourselves after technology companies instead of banks and financial services companies. Because we prioritize keeping our cash burn low and growing organically, our need to raise additional rounds of financing occurs less often than others in the space."
Roame acknowledges their efforts. "Wealthfront does have one of the narrower robo offers. [But] I think one has to consider the firm as one of the most successful stand-alone robo advisors."
'PARADIGM SHIFT'
Of course, investors are fickle and they may just move onto the new thing in digital advice, says Tim Welsh, president of industry consultancy Nexus Strategy.
"I would argue the Robo 1.0 movement — Wealthfront, Betterment, Personal Capital — was rapidly replaced by Robo 2.0 — the Vanguards and Schwabs — and now we are at Robo 3.0 — the phone apps, such as Stash and Acorns," Welsh says.
"Those have potential to go large. Stash will take clients with $5, Acorns rounds up purchases — now all of a sudden you have millions of users. After ten years, the independents still only have hundreds of thousands of clients. And they are losing money on a $30,000 account. Stash can make money on a $30,000 account."
Stash recently attracted another
Welsh argues the original robos have been upstaged by mobile-only advice app providers, who are poised for a coming era of
"That’s the paradigm shift," he says. "Tesla is buying battery factories and solar panel factories. It's not buying Ford."
