Love ’em or hate ’em, we all know that robo-advisors are here to stay and certain segments of the public now rely on them as their sole source of investment advice. The larger question, though, is how many can survive, and go on to unplug from their VC backing and take the company public with IPOs? We’ve watched this trend for a while and it is well known in the business that many of these robos are not even close to profitability, given their highly compressed fee structures. The question then becomes how long will they continue to receive VC backing to keep their lights on? The Barrons piece below outlines the predicted winners and losers in the space.
Robo-advisor pioneers Betterment, Wealthfront and Personal Capital have all talked about potential IPOs. “But there are doubts around the market viability of automated advice’s aging upstarts,” writes Financial Planning.
Betterment has more than $10 billion in AUM, while Wealthfront boasts $6.7 billion and Personal Capital has $4.9 billion. Together, they have more than 400,000 clients across the wealth spectrum.
Independent robos have continued to attract venture funding despite the arrival of digital advice platforms from the likes of Vanguard, Schwab, Fidelity and TD Ameritrade. But these big firms have cast a shadow over the independents. Vanguard’s two-year-old Personal Advisor Services has $83 billion of AUM, and TD Ameritrade’s platform has $16 billion.
That sort of scale, combined with broader client relationships, is the only way to make real money, Chip Roame, managing partner for Tiburon Strategic Advisors, tells Financial Planning. He implies that VC firms are mistaken in backing the independents.
Tim Welsh, head of consultancy Nexus Strategy, says it’s the next generation of robos—the phone apps—that could make it big. Those firms include Stash and Acorn. “After ten years, the independents still only have hundreds of thousands of clients,” Welsh tells Financial Planning. “And they are losing money on a $30,000 account. Stash can make money on a $30,000 account.”…