Invesco joined BlackRock, Vanguard, Fidelity and Charles Schwab on the growing list of traditional asset management firms that have adopted some form of online advice strategy.
The company announced plans to acquire Jemstep, one of the smaller automated investment platforms to come out of Silicon Valley, on Tuesday for an undisclosed amount of money.
Peter Intraligi, Invesco’s head of distribution for North America, said his company would end Jemstep’s direct-to-consumer product (existing retail clients will be grandfathered in) to focus on Jemstep’s institutional platform, Jemstep Advisor Pro. But Intraligi denied that the company’s interest in Jemstep was motivated by competitive pressure.
“As any thoughtful firm has, we’ve got our finger on the pulse of the trends in the industry,” Intraligi said. “As we looked at our business and the businesses of our clients – financial advisors and broker/dealers – we felt that this was the right time to add to our toolkit of available solutions.”
The acquisition seems to validate the human-digital hybrid approach advocated by some in the industry, as well as predictions that the market for independent robo advisors will start shrinking in 2016.
“It is starting to become table stakes that robo advisors are a channel of distribution for the large asset managers,” said Timothy Welsh, the president of Nexus Strategy. “Look for other asset managers to follow suit in doing an acquisition, or building their own.”
What makes Invesco’s approach unique is the focus on a robo-for-advisors solution, rather than a low-cost model directed to consumers. Intraligi called Jemstep an “open architecture” platform that allows advisors to customize and personalize the portfolio models using a variety of investment options beyond market-cap-weighted indexing.
“The one thing you don’t want to happen is to handcuff people to choose from a handful of portfolios,” Intraligi said, comparing the state of digital advice to a world where every restaurant only has the same 10 meals on the menu. He added that if algorithms are all putting clients in the same type of investments, they are going to experience the same average returns. “Investors should not settle for average.”
Intraligi also said Invesco would not require advisors using Jemstep to sell their investment products. He said Invesco would, of course, include some of its model portfolios on the platform, but advisors will be free to use, ignore, change and customize portfolios as they see fit.
Though Jemstep is now fully owned by Invesco, the company will continue to operate out of its Silicon Valley offices, a decision Intraligi said was made to foster Jemstep’s innovative environment.
Jasen Yang, the founder and CEO of Polly Portfolio, an automated advice startup based in New York City, said this spirit of innovation is why traditional firms are buying robo advisors instead of developing their own.
“Together with BBVA buying Simple, BlackRock buying FutureAdvisor, and Fidelity buying eMoney, this is evidence of how expensive and challenging tech and product innovation is inside a large financial institution,” Yang said. “I think large financial institutions are learning to look at startups as outsourced innovation, and rightfully so.”
Intraligi said Invesco did consider building a proprietary digital advice service, but ultimately decided that Jemstep was a good fit culturally and that acquiring would help the asset manager come to market quicker.
The company is going to use a team of 300 sales and service people across the country to help advisors and broker/dealers implement Jemstep.