10 Robo Advisor Moves to Watch
March 3, 2015 7:37 AM
10 Robo Advisor Moves to Watch
Whether any individual "robo advisor" firm survives is now beside the point.
The reality is that automated, algorithm-based investment management, portfolio rebalancing and, to some extent, advice is here to stay; so is digital technology that enables seamless onboarding and back-office efficiency.
Consumers will have access to powerful technology from digital-only firms, companies combining digital automation with human advisors and traditional financial advisory firms. The big questions going forward are who will be doing what in the digital advisory space -- and when and how they'll be doing it.
The following tip sheet handicaps ten of the top moves the advisory industry will be watching this year. Click here for a single-page version. --Charles Paikert
The reality is that automated, algorithm-based investment management, portfolio rebalancing and, to some extent, advice is here to stay; so is digital technology that enables seamless onboarding and back-office efficiency.
Consumers will have access to powerful technology from digital-only firms, companies combining digital automation with human advisors and traditional financial advisory firms. The big questions going forward are who will be doing what in the digital advisory space -- and when and how they'll be doing it.
The following tip sheet handicaps ten of the top moves the advisory industry will be watching this year. Click here for a single-page version. --Charles Paikert
Charles Schwab
Move: Launch of Schwab Intelligent Portfolios.
Buzz: Financial service giant's reported "no-fee" digital consumer offering is the most anticipated move in the robo space this year.
Potential Upside: Lure of "zero cost" (even though Schwab will profit from the piles of money that will end up in cash) freezes market, delivers knockout blow to B-to-C pioneers like Wealthfront.
Potential Downside: Either embarrassing vaporware or product lays an egg and is seen as handiwork of old-school company that can't compete with the cool new kids on the block.
Image: Bloomberg
Buzz: Financial service giant's reported "no-fee" digital consumer offering is the most anticipated move in the robo space this year.
Potential Upside: Lure of "zero cost" (even though Schwab will profit from the piles of money that will end up in cash) freezes market, delivers knockout blow to B-to-C pioneers like Wealthfront.
Potential Downside: Either embarrassing vaporware or product lays an egg and is seen as handiwork of old-school company that can't compete with the cool new kids on the block.
Image: Bloomberg
Vanguard
Move: Full-fledged rollout of Vanguard Personal Advisor Services, an online (and human) advice platform.
Buzz: In accelerated beta last year, the platform already has $4.2 billion in assets -- so what will growth be when this master marketer ramps up?
Potential Upside: Gobbles up big share of digital marketplace.
Potential Downside: Emphasis on phone calls with advisors turns off the digital-only crowd.
Image: Bloomberg
Buzz: In accelerated beta last year, the platform already has $4.2 billion in assets -- so what will growth be when this master marketer ramps up?
Potential Upside: Gobbles up big share of digital marketplace.
Potential Downside: Emphasis on phone calls with advisors turns off the digital-only crowd.
Image: Bloomberg
Wealthfront
Move: Targeting HNW investors and millennials (preferably combined) with deployment of $100 million cash war chest.
Buzz: Yes, the RIA's growth ($1.7 billion in AUM, according to most recent form ADV) and venture capital funding (approximately $130 million to date) have been impressive. But can a consumer-only strategy work -- and can a company charging only 25 basis points ever attract enough assets to be profitable?
Potential Upside: Wealthfront rides the demographic wave of digital-centric millennials to emerge as a Schwab-like powerhouse.
Potential Downside: B-to-C could turn out to be the wrong bet; VC backers may lose patience with the high burn rate as prospects of hefty Facebook-like return on investment diminish.
Image: Wealthfront CEO Adam Nash/Wealthfront
Buzz: Yes, the RIA's growth ($1.7 billion in AUM, according to most recent form ADV) and venture capital funding (approximately $130 million to date) have been impressive. But can a consumer-only strategy work -- and can a company charging only 25 basis points ever attract enough assets to be profitable?
Potential Upside: Wealthfront rides the demographic wave of digital-centric millennials to emerge as a Schwab-like powerhouse.
Potential Downside: B-to-C could turn out to be the wrong bet; VC backers may lose patience with the high burn rate as prospects of hefty Facebook-like return on investment diminish.
Image: Wealthfront CEO Adam Nash/Wealthfront
Betterment
Move: Rollout of Betterment Institutional, the firm's B-to-B digital offering to RIAs.
Buzz: Fueled by partnership with Fidelity, this is the biggest, best-funded effort to date to work with, rather than compete against, independent advisors. It's backed -- and being hawked -- by industry heavyweights Steve Lockshin (the Convergent founder) and Marty Bicknell, chief executive of Mariner Wealth Advisors.
Potential Upside: Becomes go-to firm for advisors looking for a robo partner.
Potential Downside: B-to-B hottest trend in the space; less differentiation with too much competition; money runs out before Betterment can break even.
Image: Betterment CEO Jon Stein/Betterment
Buzz: Fueled by partnership with Fidelity, this is the biggest, best-funded effort to date to work with, rather than compete against, independent advisors. It's backed -- and being hawked -- by industry heavyweights Steve Lockshin (the Convergent founder) and Marty Bicknell, chief executive of Mariner Wealth Advisors.
Potential Upside: Becomes go-to firm for advisors looking for a robo partner.
Potential Downside: B-to-B hottest trend in the space; less differentiation with too much competition; money runs out before Betterment can break even.
Image: Betterment CEO Jon Stein/Betterment
Motif
Move: Pershing clearing and custodial deal provides Motif with major-league clearing and custodial brokerage services.
Buzz: Deal could push well-regarded (and -funded) online broker -- backed by Goldman Sachs, JP Morgan and Chinese investment -- to next level.
Potential Upside: Firm's unique model of offering investors and independent advisors a platform and tools to buy, sell and rebalance "motifs," or baskets of up to 30 securities, stands out and catches on in crowded marketplace.
Potential Downside: "Motifs" seen as gimmick by investors or badly underperform in bear market.
Image: Motif CEO Hardeep Walla/Bloomberg
Buzz: Deal could push well-regarded (and -funded) online broker -- backed by Goldman Sachs, JP Morgan and Chinese investment -- to next level.
Potential Upside: Firm's unique model of offering investors and independent advisors a platform and tools to buy, sell and rebalance "motifs," or baskets of up to 30 securities, stands out and catches on in crowded marketplace.
Potential Downside: "Motifs" seen as gimmick by investors or badly underperform in bear market.
Image: Motif CEO Hardeep Walla/Bloomberg
Jemstep
Move: Continued rollout and adoption by advisors of Jemstep's Advisor Pro platform to onboard and service clients, boosted by the firm's partnering with TD Ameritrade, Salesforce and Tamarac.
Buzz: Major wealth managers getting on the bandwagon; the firm reports 600 new client accounts in last three months.
Potential Upside: Jemstep carves out profitable niche in fast-growing advisor/robo alliance market sector.
Potential Downside: Platform fails to stand out in increasingly crowded and commodified market.
Image: Jemstep CEO Kevin Cimring/Jemstep
Buzz: Major wealth managers getting on the bandwagon; the firm reports 600 new client accounts in last three months.
Potential Upside: Jemstep carves out profitable niche in fast-growing advisor/robo alliance market sector.
Potential Downside: Platform fails to stand out in increasingly crowded and commodified market.
Image: Jemstep CEO Kevin Cimring/Jemstep
SigFig
Move: Targeting older investors with new high-yield diversified income ETF portfolio.
Buzz: Seen as a counterintuitive shift for a digital platform, but will be closely watched.
Potential Upside: Huge market largely ignored by other robos.
Potential Downside: Could fail to penetrate boomer market and break out of the pack; portfolio may have more risk than advertised.
Image: SigFig CEO Mike Sha/Bloomberg
Buzz: Seen as a counterintuitive shift for a digital platform, but will be closely watched.
Potential Upside: Huge market largely ignored by other robos.
Potential Downside: Could fail to penetrate boomer market and break out of the pack; portfolio may have more risk than advertised.
Image: SigFig CEO Mike Sha/Bloomberg
Aspiration Fund Advisor
Move: New company pitching hedge fund-like investing approach directly to mass market clients.
Buzz: Attention-grabbing features include fund-of-funds approach; letting investors choose their own fee (excluding what money managers get); and donating 10% of "every dollar earned" to charity. Backers include Jeff Skoll, the former head of another once-small startup: eBay.
Potential Upside: Terra incognita for robos.
Potential Downside: Terra incognita for robos.
Image: Aspiration CEO Andrei Cherney/Aspiration
Buzz: Attention-grabbing features include fund-of-funds approach; letting investors choose their own fee (excluding what money managers get); and donating 10% of "every dollar earned" to charity. Backers include Jeff Skoll, the former head of another once-small startup: eBay.
Potential Upside: Terra incognita for robos.
Potential Downside: Terra incognita for robos.
Image: Aspiration CEO Andrei Cherney/Aspiration
Robinhood
Move: New company is set to launch B-to-C robo brokerage with zero commissions.
Buzz: Supposedly has half a million people on waiting list; backing comes from high-quality VCs, including financial services specialist Ribbit Capital.
Potential Upside: Grabs share of mass market.
Potential Downside: Unable to hit needed volume levels.
Image: Robinhood co-founders Vladimir Tenev and Baiju Bhatt
Buzz: Supposedly has half a million people on waiting list; backing comes from high-quality VCs, including financial services specialist Ribbit Capital.
Potential Upside: Grabs share of mass market.
Potential Downside: Unable to hit needed volume levels.
Image: Robinhood co-founders Vladimir Tenev and Baiju Bhatt
Guardvest
Move: Launched automated service that "measures performance and tracks expenses" of financial advisors for $9 a month -- and recommends other advisors if customers are unhappy.
Buzz: Appears to be first to market with model; advisors are understandably nervous and curious.
Potential Upside: Differentiated in crowded market; becomes the Carfax of financial services.
Potential Downside: Playing footsie with advisors looking for prospective clients; revenue model is unclear.
Image: Co-founders Steve Scanlon and Audie Apple/Guardvest website screenshot
Buzz: Appears to be first to market with model; advisors are understandably nervous and curious.
Potential Upside: Differentiated in crowded market; becomes the Carfax of financial services.
Potential Downside: Playing footsie with advisors looking for prospective clients; revenue model is unclear.
Image: Co-founders Steve Scanlon and Audie Apple/Guardvest website screenshot
