It’s a crowded market for retail-facing robo investors, and the recent closure of Hedgeable shows a shake-out is inevitable. So, more tech providers are turning to the financial advisory space, hoping to help advisors better serve their own clients.
Like Betterment, FutureAdviser and SigFig, all of which started out as consumer-facing automated investment offerings before expanding into the financial advisor space, these tech providers are hoping the business-to-business landscape is a faster path toward new investments and growth. Firms like InvestmentPOD, qplum, and 55ip are bringing advisors investment management tools that go above and beyond the first wave of low-cost, consumer-grade robos.
InvestmentPOD recently announced it received fresh funding from a trio of multibillion-dollar RIAs via the Scratchworks FinTech Accelerator, a consortium of advisors looking to fund technology tools that assist advisors. InvestmentPOD, founded in 2017 and already counting $35 million in assets under management, according to its most recent SEC filing, signed equity deals with leading RIAs Mariner Wealth Advisors, Covenant, and Brighton Jones.
InvestmentPOD Founder and CEO Jacqueline Ko Matthews said she first looked at the business models of the business-to-consumer robos, saw their high costs of acquisition and the gritty economics of commoditization, and decided to make her product available to advisors instead of the general public.
The B2B route allows platforms to acquire assets at a faster rate and lower costs than a B2C strategy, said Matthews. “We’re able to prove that we have a viable business model that can get to profitability with a much, much lower cost of acquisition of a client and with a much higher average account size.” She expects the company to be profitable by the end of the year.
In fact, a recent Morningstar report noted that acquisition costs for B2C robos, such as Betterment and Wealthfront, were $300 per gross new account and $1,000 per net new account, just in marketing alone. That means reaching $10 billion in client assets requires roughly $200 million in cash. Given their low operating margins even after reaching the breakeven point of profitability, “the payback period on advertising costs can be more than a decade,” the report concluded.
Automated investment platform qplum was quick to smell blood when Hedgeable shuttered their investment advice product.
Time to switch! Move your #Hedgeable account to #AI-driven investment manager @qplum_team. We'll reimburse any brokerage transfer fees and waive 30 days of our management fee. https://t.co/JYK9kSZQO8
— qplum (@qplum_team) July 12, 2018
Founded in 2015, qplum has a platform for individual clients, called Wealth, that it sees as competitive with hedge funds and active-strategy robos, like Hedgeable. It also has an advisor-focused product, Alpha, and an automated product for larger asset holders, like pension funds, which it calls Solutions.
Like InvestmentPOD, qplum delivers dynamic asset allocation, although it only offers off-the-shelf portfolios based on a variety of risk profiles, which may limit its appeal among advisors who have their own strategies. What does stand out about the company, however, is its insights into both the B2B and the B2C markets.
qplum CEO Mansi Singhal said that the consumer-facing product helps the company build rapport with the institutional side, by showing the company has assets and a track record. The institutional side helps take pressure off of the company to keep acquiring individual accounts that are often lower in value. “We ended up in the gray area where, whether you call us B2C or B2B, it’s not entirely clear sometimes,” she said. “You have to find what products are good for your clients.” The company reported $43 million in AUM on its most recent SEC filing.
Founded in 2016, 55ip stretches automated investing solutions to its breaking point. The customizable platform is white-labeled for advisors and has automated investment allocation, with a sophisticated tax management tool that goes beyond basic tax-loss harvesting, according to the company. Company filings note the firm directly manages $81 million in assets.
Advisors who partner with 55ip and have under $500 million in AUM typically want to grow their businesses and lower their investment management costs, said Sachin Shah, the firm’s chief revenue officer, while those with more assets are interested in fine tuning their offerings and defending their value to clients.
The platform lets advisors “robo-fy” their own investment strategies, which can be a differentiator for an advisor’s practice. Automating the investment management allows advisors to avoid the time-drag of implementing portfolio models, which may steal resources away from servicing clients and prospecting.
“The lines between asset manager and advisor will start to blur,” Shah said. “If you’re going to shine, then you need to provide intelligent tools.”
Although there are still new entrants into the B2C automated investing space, the latest robo land grab is taking place on the advisor workstation, and that means meeting a demand for more nuanced tools better suited for a high-touch client service, said qplum’s Singhal. “If your client is at a point where they have more complex needs, then they will not find these legacy advisors to be good service providers.”
