Is the financial technology sector in a bubble? Are there too many terms like smart beta and robo-advisors? Apparently not, and the concept of robo-advisors is gaining traction as another way for asset managers and technology-centric service providers to channel their products through sleek graphical user interfaces (GUI). Strategies and consultancy firms profess a trend that younger, affluent investors prefer online advice and lower fees versus hiring a flesh-and-blood financial advisor. The question looms, will computed online advice become a standard expectation for wealth management?
Robo-advisors are a type of financial advisor that provides web-based portfolio management with almost zero human intervention.
To meet the current demand, asset managers are combining elements of robo-advisors with their current offerings. For example, in May 2015, Vanguard rolled out their robo-advisor service. Other asset managers are buying robo-advisors. In August, asset management goliath BlackRock acquired San Francisco-based FutureAdvisor, an automated investment service. FutureAdvisor will be under BlackRock Solutions, the firm’s investment and risk management unit. The startup was founded in 2010 and raised a tad over US$ 20 million from venture capital firms such as Sequoia Capital and Kapor Capital.
SWFI Robo Advisor League Table
|Company||Product||HQ||Assets Under Management in USD (not parent company)||Fees and Costs|
|Charles Schwab||Schwab Intelligent Portfolios||San Francisco, CA||3,000,000,000||No advisory fees, Schwab affiliates do earn revenue from the underlying assets in Schwab Intelligent Portfolios accounts. Revenue may also be received from the market centers where ETF trade orders are routed for execution.|
|WealthFront||WealthFront||Palo Alto, CA||2,612,809,400||0.25% of assets after first US$ 10,000.|
|Betterment LLC||Betterment||New York, NY||2,603,268,353||0.15% to 0.35% of assets.|
|Vanguard||Vanguard Personal Advisor Services||Malvern, PA||2,400,000,000||0.3% of assets.|
|Personal Capital||Personal Capital||San Francisco, CA||1,518,220,789||0.49% to 0.89% of assets|
|AssetBuilder, Inc.||Asset Builder||Plano, TX||686,369,069||0.20% to 0.45% of assets, depending on balance, plus trading costs.|
|BlackRock||FutureAdvisor||San Francisco, CA||232,124,148||0.5% annual fee on investable assets|
|SigFig Wealth Management, LLC||SigFig||San Francisco, CA||70,000,000||0.25% of assets after first US$ 10,000.|
|Hedgeable, Inc.||Hedgeable||New York, NY||35,216,393||0.3% to 0.75% of assets|
|Foliofn Investments, Inc.||Folio Investing||McLean, VA||Many options, main is US$ 29 per month|
|Traditional Asset Management Firm||0.75% to 1.5% on assets, plus fees.|
Updated: August 2015, Data: Regulatory filings and company research
What is a Robo-Advisor?
Robo-advisors are a type of financial advisor that provides web-based portfolio management with almost zero human intervention. These online advisors typically use algorithms and formulas to conduct portfolio management. In the United States, robo-advisors must be registered investment advisors. Furthermore, many of these “advisors” will select low cost exchange-traded funds (ETFs), smart beta funds or index funds to invest into. This disruptive wave has put some traditional human advisors on the defensive.
Why the Demand?
Is their excess hype over what a robo-advisor is? This isn’t R2-D2, it’s essentially website code that offers automated advice on fund selection, asset allocation, rebalancing and tax-loss harvesting. The wealth management market is being disrupted for several reasons. Technology and lower barriers of entry have permitted wealth management “customized” solutions for mass market consumers (people with less than US$ 200,000 in investable assets.) Furthermore, the reduction of fees and perceived control over investments appeals to younger demographics according to numerous surveys.
Malaysia-based Permodalan Nasional Bhd (PNB) inked plans to acquire a stake in the Battersea Power Station from Malaysian developers Sime Darby Property and SP Setia, which between them own 80 percent of the site located on the south bank of the Thames. [ Content protected for Sovereign Wealth Fund Institute Standard subscribers only. Please subscribe to view content. ]
Saudi Arabia’s growing Public Investment Fund (PIF) is reportedly looking into investing over US$ 500 million for a 5% to 10% stake in Hollywood’s Endeavor Talent Agency, the holding company for William Morris Endeavor Entertainment LLC (WME). WME is one of the biggest players in the business, representing well-known artists across a number of different mediums – including cinema, television, music, books, and theatre – as well as a roster of professional athletes from the National Football League (NFL) and National Hockey League (NHL). Discussions are in their initial stages, however, and no commitments have been made thus far. WME is constantly gather new talent. Recently WME signed musician John Mayer and actor Nicolas Cage – both were with Creative Artists Agency (CAA).
A Logical Connection
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Calgary-based Razor Energy Corporation, a listed junior oil and gas company, locked in an increase of C$ 15 million regarding its non-revolving term loan facility from the Alberta Investment Management Corporation (AIMCo). [ Content protected for Sovereign Wealth Fund Institute Standard subscribers only. Please subscribe to view content. ]
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