Change is coming rapidly for robo advisors. Offering a simple, automated investment platform at rock-bottom fees, robo advisors have caused a massive stir in the wealth management industry in recent years. Growth has accelerated, as robo advisors sign up new consumers and gather more assets. At the same time, there has been a fascination around the future of robos in the advisory channel. Would robo advisors challenge the traditional human advisor—or would these digital advisory platforms be an ally for creating greater value?

The 2015 Advisor Authority Study, conducted by Jefferson National and Harris Poll, found that advisors who managed the most assets and who earned the most personal income are the most tech-obsessed. They are far more likely to leverage robos, spend more on technology overall, and adopt technology into their practice at twice the rate of the typical advisor. For these advisors using technology is key to enhance the client experience on the front end, and create a more efficient and scalable practice on the back end.

Now, as more advisors are going robo, at the same time that more robo advisors are turning their attention from consumers to the advisory channel, we have seen a corresponding trend in the robo space: consolidation and acquisition.


Over the past year, the top three independent robo advisors by AUM — Betterment, Wealthfront and Personal Capital — more than doubled their combined assets from roughly $3.8 billion at the end of 2014, to roughly $7.9 billion at the end of 2015. An impressive growth rate for a business model predicated on building a broad base of clients with relatively low balance accounts. Interestingly, the 2015 Advisor Authority Study found that advisors who use robo-advice are employing the tools for older, wealthier clients — contrary to popular belief.

As any industry matures, consolidation is inevitable. For financial services broadly, and for robos in particular, there are a various forces at work:

  • Insatiable Demand for Innovation: Consumer demands shift and evolve at a faster rate than ever before. Now, speed of information and immediate access have become a prerequisite, largely driven by technology companies like Apple, Google and the many on-demand services that are changing the “user experience.” But few startups have the capital required to continuously meet the market’s demand for ongoing innovation. Instead, most robos must turn to a partner with deep pockets to stay ahead of the game.
  • Acquisition is Pervasive: Since its launch in 1985, Google has acquired nearly 200 companies. Facebook has acquired more than 50 companies over the past decade. Likewise, many larger players in the financial services industry— such as custodians, discount brokers, wirehouses, banks, asset managers and TAMPs looking to bolster their user experience and digital asset management capabilities — consider robo advisors attractive targets. It’s inevitable that many of today’s robos will be purchased — or perish.
  • The DOL Fiduciary Ruling: This could be the year that demand for robos takes off. The new ruling has propelled a shift from a commission-based sales to a fee-based compensation model. To be compliant with the new rule, while confronting  downward pressure on fees, some of the largest RIAs, wealth managers, broker dealers, wirehouses and banks will look to incorporate robo advice – whether licensing existing robo services or buying them outright.


Now two trends are converging: first, larger players are increasingly seeing the benefit of a digital wealth advisory platform; second, robo advisors have started to see that their future lies in playing nice with the traditional human advisor. Both of these trends converge in the acquisition and consolidation of digital wealth platforms. A recent webinar by Aite Group — 10 Trends in Wealth Management, 2016: From Digital Advice to Regulation — examined the importance of both trends:

  1. Incumbents Turned Disruptors: While initially slow to recognize the robo opportunity, larger institutions are now taking the lead and disrupting their own industry. As they verticalize their operations, these institutions are beginning to build their own in-house robo platforms, acquire smaller players, or partner up. These include BlackRock’s acquisition of FutureAdvisor, Envestnet’s acquisition of Finance Logix, and Fidelity’s partnership with Betterment (prior to building their own robo, Fidelity Go). The focus of these industry acquisitions is changing. Once viewed primarily as revenue-generators, now acquisitions focus more on improving the user experience.
  1. Shifting to Advisors: Many robo advisors have recognized that the future of the advisory industry is neither solely digital nor a human-only — but rather a mix of human touch and digital experience. Betterment, for example, has seen an opportunity working with advisory firms through programs like Betterment Institutional and Betterment 401(k). Other robos are also moving in that direction. SigFig is phasing out direct-to-consumer distribution to focus on the advisory channel, and Jempstep made the transition from retail investors to institutions, and was promptly acquired by Invesco.


So what will be the end result once the dust settles on the recent wave of acquisitions and consolidation?

It demonstrates how the industry’s focus on the consumer’s best interests and preferences is driving positive change in wealth management. In order to create the best value for their clients, advisors are focusing on the entire user experience, to create a more fulsome and holistic approach to advice that takes into account how it looks, feels and adds value. Robo advisors and other technology companies across the industry, such as data aggregators, CRM platforms, portfolio risk platforms and rebalancing tools, are a means to achieve the goals of improving the client experience and differentiating the advisor’s offering.

Ongoing innovation in financial services continues to grow at a pace that has never been seen before. The beneficiary will be the advisor and the consumer. In the end, technology is no replacement for holistic guided financial advice. And as clients build more wealth, their need for guided advice only continues to grow. But as the rapid pace of consolidation and acquisition across the industry leads to the adoption of these digital advisory platforms by a growing number of advisors and their clients, they may find that bridging the robo divide helps them become more connected than ever before. 

Mitchell H. Caplan is chief executive of Jefferson National.

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