This story has been updated.
Northwestern Mutual's acquisition of LearnVest is a clear message to its competitors: Time to play aggressively in the digital wealth management space.
"The big players have just started to make their first moves – they are putting their pieces on the chessboard," says Sven Weber, managing director and president of SharesPost 100, a fund that invests in pre-IPO companies and has investments in the digital wealth space.
"This puts pressure on the other corporations to do their move. ‘If my competitor is doing an acquisition, what does that mean for us? How do we differentiate?’ We will see many more acquisitions in this space," he predicts.
In an interview Monday – two days before the Northwestern-LearnVest deal was announced – Aite Group senior analyst Sophie Schmitt said LearnVest was a likely target for acquisition by an established firm.
"LearnVest has CFP over the phone, so they're on the human side of things, but that’s perhaps a costly model," she said. "I think [for] a large wealth management firm that has the resources, there are opportunities to blend the expertise of both their internal advisors with more digital tools to deliver services in a cost effective way. You really need a multichannel offer in this day and age.”
Reached after the deal was announced Wednesday evening, Schmitt says Northwestern needed LearnVest's technology. "Northwestern has been trying to build something like this already, now this accelerates that effort," she says. "Rather than spending a ton of money themselves, they can just buy the firm and integrate their technical capabilities, ability to prospect, client acquisition that LearnVest provides and also a client-servicing element. Traditional firms can really benefit from these digital platforms."
Weber agrees that the acquisition is "complementary" and will boost both Northwestern and its new LearnVest unit.
"For the traditional firm, it increases their reach in customer acquisition and lets them differentiate that customers are not leaving to go somewhere else," he says. "For the independent platform, they probably asked, ‘Can we scale up?’ And they came to the conclusion this is a decent offer, what we have is more like a product than a significant platform, and it is better to marry this up with Northwestern."
Indeed, in announcing the deal, Northwestern Chairman John Schlifske said: "There's been a gap between what consumers want and what the financial industry has been able to offer.” Northwestern – the seventh-largest firm in the FP50 ranking of the nation’s biggest independent broker-dealers – “will fill that gap by redefining how financial security is delivered,” he said. And Alexa von Tobel, founder and CEO of LearnVest, added: "LearnVest has made it our mission to make unbiased financial planning affordable, accessible and delightful for all American households.”
Northwestern is the latest traditional firm to wade into the digital space. Charles Schwab released its own automated investment platform for investors and a secondary offering for advisors, Vanguard has been quietly building its Personal Advisor Services unit, and Fidelity announced a deal last month to acquire eMoney Advisor.
The purchase price for LearnVest – which says it has about 1.5 million users, more than 25,000 LearnVest at Work clients and close to 10,000 premium clients, though in its latest SEC filing in Feburary, the company reported it advised just 3,700 clients in the last fiscal year – was estimated by Bloomberg News as higher than the $250 million valuation of LearnVest in a 2014 funding round.
RAISING THE STAKES
The latest deal is sure to raise the stakes for other major independent broker-dealers.
Dmitry Goldin, CEO of Royal Alliance, part of AIG Advisor Group, one of the nation’s biggest independent broker-dealer networks, said, “We do have an interest in automating the existing advisor experience when it comes to social media, client contact and what the client can expect from the advisor. We know the demographics of clients are changing, and we need to cater to millennials who are tech savvy and want timeliness and availability of advisors. It's a very important concept.” Goldin added that his firm has no immediate plans to acquire a digital platform, but “may be interested down the line. … As clientele transitions to a younger demographic, we will see more of an online experience and advisors will be more responsive."
CONNECTING WITH UNDERSERVED
Mark Schwanhausser, director of omnichannel financial services at Javelin Strategy & Research, a research and consulting firm, says LearnVest was a smart addition for Northwestern as it works to connect with an underserved investor class.
"It's thinking more broadly about your money – it’s got your goals, your spending, your loans – it’s not just investing like Personal Capital and Financial Engines," he says. LearnVest “has a broader view and aims to provide comprehensive financial plans.”
"What was probably driving Northwestern [was the] opportunity for their financial advisors to have a tool to broaden that conversation,” Schwanhausser adds.
Schmitt said that the force that will continue to propel acquisitions of digital wealth management firms is the increasing realization that millennial investors are expecting sophisticated platforms to interact with, and judge a firm on their digital offerings.
"It's clear that the Gen X and Y have gotten spoiled with technology, especially when you see the younger generation wanting access to their investment information on mobile devices much more than the boomers," Schmitt said.
"Every firm right now recognizes that they need to enhance their digital capabilities for their clients. That's a given. Every firm is working on that,” she added.
One industry observer says such acquisitions demonstrate that many digital investment platforms were built merely to attract a buyout offer from a traditional firm.
"These early robos sold their soul to VCs and are now paying the price by betraying their vision to bastardize financial planning as an insurance policy by selling to the very same institutions they promised to disrupt," says Tim Welsh, president of Nexus Strategy.
Von Tobel, in a statement announcing the deal, disputed that position: “After five years of constant innovation from the LearnVest team, I could not be prouder that Northwestern Mutual and LearnVest are coming together to redefine financial planning in America." – Additional reporting by Andrew Shilling
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