The Financial news focus in January was animated, colorful, and with 10 articles on Robo-Advisory.
As markets are in turmoil and portfolios are bleeding, most of us are questioning the impact of the macro-economic cycle. Last week Bernard Lunn shared his thoughts on the impact of the macro-economic cycle on Fintech startups and on Financial institutions. In a nutshell, incumbents and insurgents in financial services aren’t over-leveraged, so no blowup expected there. Early stage startups can recover quickly from market shake-ups. Valuations of late stage Fintechs can get hammered and take more time to recover.
January has not been boring on any front. Robo-advisory continues to be a hot topic and yellow (the color of new ideas) was not missing from the trending Fintech topics (Roboadvisor hashtag on Twitter can brighten-lighten your day).
2014 was the peak year of VC funding in the robo-advisor sector
CB insights reports $290 million funding to both pure robo-advisors (like Betterment, Wealthfront, nutmeg, TradeKing, etc) and to enablers (like InvestGlass, Learnvest, Motif, Trizic, etc). This could be 40%-50% of the total VC funding of the last decade! According to an open-sourced study “The State of Robo Advisors — Personal Financial Advisor as a Service“ 2014 VC funding was higher, close to $350, and the last decade was estimated to be $750 (46%). VC funding for 2015 dropped to $134mill, which seems close to a 50% drop (using CB insights 2014 data). Betterment got the largest chunk from the 2015 VC funding; $60 million from Francisco partners, which is the fourth VC fund investing in them. Wealthfront has seven VC funds breathing down their throat and has raised the largest amount form all robo-advsiors ($130million compared to Betterment with total funding of $150 million).
2015 was the year of incumbents starting to overcome the Innovator’s dilemma in investing
2015-2016 will be the years of acquisitions &
incumbents putting up signs “Robo-advisor Coming soon”
Two brokers, an insurance company, and two incumbents in the investment and asset management business; were the 2015 movers. They acquired robo-advisory businesses and are integrating them in different ways into their businesses.
IG acquired InvestYourWay to enhance its distribution of Blackrock ETFs.
Invesco acquired Jempstep, to make it available to its advisor network.
Northwestern Mutual acquired Learnvest to complement its financial planning and insurance business.
Vanguard and Charles Schwab have been the front-runners in taking a stance with regards to the Innovator’s dilemma (aka adding to their business a lower cost offering that can be cannibalizing their business model). Fidelity had also been amongst the first with their partnership with Betterment that proved short lived.
Fidelity is now in the process of launching their own robo, FideltyGo and an additional institutional version.
Deutsche bank is Anlagefinder.
Saxo Bank has launched Saxo Select in partnership with Blackrock funds.
Macquarie in Australia, launched a DIY robo service, OwnersAdvisory.
Bank of America is designing their robo for Merill Edge.
UBS says Robo is “unstoppable” and the giant universal bank will test it in one market this year.
Have we reached a dozen and are these “Launching” & “Coming soon” signs from large institutions? Is this a global trend? Yes, Yes.
US dominated for now (take a look at the list sorted by region), but Canada and Europe is joining. Asia too.
Vanguard; Charles Schwab
Bofa (in design)
Deutsche bank; Saxo Bank
One UK bank from the big 4 (in design according to FT)
BMO, National Bank of Canada
True that robo-advisor VC funding dropped in 2015 but incumbents rolled up their sleeves and invested in their own robo-advisors. And yes, Fintech wasn’t trending in their earning calls this year but this I see as a just a “tagging” glitch. 2016 is trending in #roboadvisor and it is unstoppable.
Incumbents are leapfrogging the independents. Watch!
Daily Fintech Advisers provides strategic consulting to organizations with business and investment interests in Fintech. Efi Pylarinou is a Digital Wealth Management thought leader.