Two former Scottrade executives are taking a page from the playbook of banks and custodians, acquiring a small robo advice platform with the goal of reaching a niche investor market.

Jonathan Yao and Kris Wallace say they want to aggressively pursue investors in Chinese-American communities in cities like Los Angeles, New York and San Francisco, as well as across the Asia-Pacific region — following a trend of tailoring digital advice platforms to appeal to specific minority investor communities.

The pair acquired MarketRiders, an independent robo, for an undisclosed combination of cash and stock through Sogo Financial Group, the parent company of the discount online brokerage SogoTrade. Yao is SogoTrade's CEO and Wallace has become CEO of MarketRiders.

A web-based software tool launched in 2008 to serve DIY investors, which migrated into robo advice in 2015, MarketRiders reported to the SEC in December it was managing $5.9 million for two clients.

Appealing to Asian investors is how it will grow its client base, says Yao, who grew Scottrade's Asia-Pacific business to $5 billion in assets before leaving the company six years ago.

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"Right now, China has more and more investors," he says, predicting that by 2020 Chinese investors will use robos to manage $1 trillion of their assets.

"They are looking for U.S. products and services when they start to trade stocks and ETFs. Also they are looking for long-term asset management and MarketRiders can provide that, especially for the middle income [investor] in China."

CANTONESE, MANDARIN, OR BOTH
Yao and Wallace say they are targeting "emerging affluent" clients with $50,000 to $500,000 to invest.

They'll face other platforms that hope to tap into the same Asian market, both here and abroad. A number of local banks and fintech startups are racing to bring robo advice to Chinese investors, such as Chatham, New Jersey-based DriveWealth, which developed a white-label robo for Chinese financial firms.

Yao, who was born in Taiwan and came to St. Louis University as a graduate student, says that while at Scottrade, he was unable to pursue the Asia-Pacific market as aggressively as he wanted to.

About 30% to 40% of SogoTrade's client-facing employees speak Cantonese, Mandarin or both, he says. Administrative operations in Taiwan enable the online brokerage to offer 24-hour service five days a week, Monday through Friday.

Back in St. Louis, Yao and Wallace hope to start hiring some of their former Scottrade colleagues.

Sogo Financial Group CEO Jonathan Yao predicts robos will capture $1 trillion of Chinese investor assets.
Sogo Financial Group CEO Jonathan Yao predicts robos will capture $1 trillion of Chinese investor assets.

TD Amertrade's purchase of Scottrade, slated to close this year, will result in about 2,000 lost jobs in St. Louis, where both Scottrade and SogoTrade are based, Wallace says.

Over the past couple of months, SogoTrade moved MarketRiders' headquarters from Menlo Park, California, to Missouri, the partners say.

After Yao left Scottrade to start his own consulting firm, SogoTrade became his first client in 2011. Three years later he became its CEO. The following year, Wallace left Scottrade to join him at SogoTrade, with the intent of launching a robo offering.

In a crowded digital advice market, having focus helps, says Tim Welsh, president of the consulting firm Nexus Strategy.

"The wealth management industry is such a fragmented business — there are IRAs, IBDs, banks, wirehouses — [that] so as long as they have an understanding and a clear view of whom they're selling their robo to, they will find opportunities," Welsh says. "It certainly sounds like they've got the experience to do it."

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Ann Marsh

Ann Marsh

Ann Marsh is a senior editor and the West Coast Bureau Chief of Financial Planning. Follow her on Twitter at @Ann_Marsh.