Small startups are trying to break into the ranks of adviser-facing robos, as some experts say the market has become too crowded.
Automated investment platforms like Wealthfront and Betterment have been in the industry for more than five years, and giant financial firms took the industry by storm last year with the releases of platforms such as Schwab Intelligent Portfolios and the repositioning of BlackRock's acquired robo, FutureAdvisor, to serve advisers.
As firms realize the value behind robos as a tool for financial professionals, technology vendors are hoping to be the answer to firms' needs, by offering automated investment capabilities, goals-based investing platforms and redesigns of portfolio breakdowns.
Advisor Software Inc. released an adviser-facing robo platform last week. The open architecture offering, which is called ASI Digital Advisor, includes goals-based investing, a mobile-responsive client portal and easy access from the adviser's website. It uses various currencies and integrates with Yodlee, a data aggregator, to view held-away assets.
Erik Jepson, chief customer officer at ASI, said the company offers customization through its open architecture, making it a strong contender in a market with room to grow.
“Robo-advisers are here to stay and in a fairly short period of time, advisers will be ubiquitous,” he said. “There has definitely been a lot of interest and I think that will continue, but the market is so large.”
However, industry watchers don't necessarily agree. Analysts say the smaller players are entering a competitive — and growing — marketplace, and that they'll need to find their own path in the robo market, as opposed to following in the footsteps of Wealthfront and Betterment.
“We have seen more firms launch with the intended purpose of being an adviser solution,” said Sean McDermott, an analyst at Corporate Insight. “There isn't enough room in the market to have the number of adviser-facing software out there that do exist.”
Firms are noting the sense in pairing robo technology with an adviser, because it provides clients with efficient and automated investment strategies and the human element at the same time. When
BlackRock acquired FutureAdvisor last year, it turned the platform into one for advisers. Envestnet did the same
when it acquired Upside, which is now called Advisor Now. Financial Engines, an original robo in the retirement market,
acquired The Mutual Fund Store last year so it could deploy its technology through people and brick-and-mortar offices.
Meanwhile, Morgan Stanley, Merrill Lynch and LPL reportedly have
robos in the works for their advisers.
Robo-advice platforms are expected to grow substantially in the next four years, reaching $489 billion in assets under management by 2020, according to a
Cerulli Associates study.
Matthew Fronczke, an analyst and engagement manager at research firm kasina, said in an email that the market is getting too crowded.
“The portfolios they offer are all very similar and are only differentiable by cost, and other associated services around the edges such as tax loss harvesting,” Mr. Fronczke said. “Those coming to market must offer something different.”
Mr. McDermott's suggestion for these smaller startups is to find the pieces around investment advice that advisers need to effectively manage client relationships, such as helping reduce the cost for client acquisitions and easier client onboarding.
In essence, the newest members of the robo movement will need to differentiate themselves to compete with the established startups and the
financial titans.
Gravity Investments, a robo-adviser for advisers, differentiates itself by reinventing the way advisers see and use diversification in client portfolios. Once a portfolio is plugged in, advisers can use the graphics to determine which asset classes clients are too invested in and widen the scope of the portfolio. James Damschroder, co-founder of Gravity Investments, said the company was able to jump into the robo market because of their experience in the industry.
“We are in the early innings, I believe that there is going to be a lot more entrants,” Mr. Damschroder said. “We are one of the early adopters already servicing the industry and we were able to quickly pivot our solution to the robo-adviser business model.”
On top of being innovative, startups will need to be resilient in their marketing efforts to advisers as well. According to a survey by publishing group Investing Media Solutions' Wealth Management Monitor coming out next week, which asked 4,800 readers including financial professionals and advisers, 49% said they had never heard the term robo-adviser. Of those familiar with the term, 12% were considering using one.
Jasen Yang, chief executive officer and founder of Polly Portfolios, an online automated investing platform for advisers founded in 2014, said robos and technology platforms need to focus on what's left to automate. It isn't just
client portals and operational elements like rebalancing and sending trades, he said.
“There are still pieces that people are just starting to nibble at,” Mr. Yang said. “The actual financial planning. In terms of investment management, which is our focus, there's much room for robos to add value there."
“There is room for more pieces to be automated,” he added.
