With the Yodlee sale to Envestnet at more than 50% markup from its market capitalisation, the issue of data value, data monetization is timely again. Envestnet must believe that they can monetize Yodlee’s unique data that is not accounted for in its valuation. The new entity operates in the B2B space of InvestTech (coined as the ecosystem that encompasses all Fintech applications in the broad area of investments). The question of what value can be extracted from data (financial user data, related to user behavior, actions, and needs) surfaces and brings to my mind another Fintech company also based in California that has just this year accumulated huge amounts of user data. SigFig, whose name brings to my mind some type of new cross-bred fruit, has a stunning database of:
- 2 million accounts (2 million users), whose financial assets are analyzed for free.
- A total assets under advice (AUA) of $350billion and a goal of $1 trillion for 2015 (as CEO Mike Sha has stated)
The tiered business model, free advice and fee-based asset management, is similar (on the surface) than that of Future Advisor who also offers advice for free and asset mgt for fee. However, SigFig who was B2C, now has aggressively targeted B2B. Future Advisor remains B2C and heavily focused on retirement accounts (SigFig doesn’t cover this area). They allow their customers to leave their assets in custody with Fidelity or TD America, and they charge them 50bps for AUM (double the rate of Betterment, Wealthfront and those mainly in the B2C space). B2C had proven to entail high customer acquisition cost and only Vanguard’s Robo Advisor has already accumulated meaningful AUM ($17billion) that makes for a profitable business area.
With $350billion AUA (x5 times more than Vanguard’s robo advisor AUM), there are two main questions to address:
- How did SigFig accumulate this amount of AUA and user data?
- Can SigFig convert part of the AUA into AUM?
The story of accumulating these assets is one of mass-market investors that clicked on the button “Powered by SigFig” on the dashboard of some web site like: Yahoo Finance, CNN Money, USA Today, AOL, or Forbes. The easy signup provided users with free analytics and financial information on existing portfolios, without ever moving their portfolios from their custodian. It also enabled investors with multiple accounts, to obtain for free an aggregate risk assessment and review. SigFig was getting paid from these “partners” (the Yahoo Finance sites and the likes) for improving their user engagement metrics. Also, SigFig was getting paid from brokers that executed recommendations made through the various SigFig dashboards. Additionally, if a user wanted advice from a traditional RIA, SigFig referred them to one of the advisors in its network — for which it is was paid a % of the advisor fee in perpetuity. This revenue model changed recently, when SigFig aggressively shifted from a pure aggregator of online financial information and analytics, to asset management and offering portfolio analytics software to banks.
Revenue now comes from users that will opt to use SigFig for their portfolio management. Whenever, a free-advise user account is to be converted to a fee based asset management account, the user needs to actually go to the SigFig site and signup separately (custody remains unchanged with partners TD Ameritrade, Fidelity, and Charles Schwab).
Currently, AUM generating fees for SigFig are close to $70million. Future Advisor, at the same time, manages $600million (roughly x10 times more). SigFig believes that the conversion from AUA to AUM is actually a scalable one, based on the response from a small scale (1000 users from the 2million) “experiment” conducted earlier this year.
Despite the impressive accumulation of AUA assets (free advice), SigFig is aggressively looking to expand its offering by partnering with banks via white label agreements that will enable banks to have a powerful holistic offering. The aim is to provide banks with a SigFig-like white label robo platform, that will include seamless online on boarding of clients, risk assessment surveys and automated portfolio management. This is a different approach than the strategy of FutureAdvisor, whose business is focused on serving clients (B2C) and doesn’t offer white labels to banks.
Will banks embrace such a white-label offer from SigFig or other Fintechs and how will it be integrated into their existing wealth management offering? Fee reduction in the asset management business will continue, commoditizing the service at least for the mass investors; hundreds of billions AUM will be needed to have a standalone profitable business. Can the SigFig business strategy convert enough AUA into AUM? To whom does the data accumulated by SigFig through its 2million accounts, have value? Are we witnessing a shift from actually disrupting the wealth management process outside the regulated wealth managers (by offering cheaper and automated services and serving the unadvised) to simply selling to the incumbents and the traditional channels around them (brokers, custodians etc) better technology and broadening their client base?
The voice of the Advisory community RIABiz has covered extensively SigFig developments since its shift to the pure B2B area.
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