The largest IBDs and asset managers are confronting a digital wealth management challenge that a number of large wealth managers and advisory firms are already familiar with: build the technology or buy it?
As they position their advisors to compete for future clients, diverging strategies have developed. Some firms are confident they can build the tech they need to stay competitive, while others find it easier and cheaper to collaborate or purchase outside tech firms.
In the industry’s latest move, Principal Financial Group snapped up digital wealth startup RobustWealth, broadening its online reach. With the acquisition, RobustWealth gains access to Principal’s 16 million clients while Principal brings on much-needed digital advisory capabilities, the firm says.
The new Principal platform will integrate automated rebalancing, back-end functions and open architecture investment options, the firm says. By targeting advisors in the RIA, independent broker-dealer and community banking channels, the firm will have access to a combined $8.9 trillion in assets in the channels, the firm says. (Principal has $673.8 billion in assets under management globally).
“This is another powerful example of the vertical integration and consolidation that’s taking place across the industry,” says Bill Capuzzi, CEO of Apex Clearing. “We are seeing asset managers — in this case, Principal Financial — trying to distribute their product in more intuitive, seamless, efficient ways and RobustWealth has proven very successful in providing new products to the advisor base.”
RobustWealth’s technology stack offers an advisor portal and client dashboard, automated custodian billing, customized fees, document vault storage, paperless account opening and client onboarding among other capabilities, all in a privately-labeled package, according to its website. The Lambertville, New Jersey-based startup listed more than $867 million in AUM on its latest Form ADV filed in April — $41 million, of which, is held in discretionary accounts.
The terms of the deal were not disclosed.
“Together we will continue to evolve a digital advice platform that is sophisticated but simple,” says Mike Kerins, CEO of RobustWealth. “Ultimately, these interactions combine our financial expertise with personalized digital advice that helps consumers meet their financial goals.”
Consolidation in the industry will likely only continue and take on different forms, Capuzzi says. One likely scenario is for custodians to be acquired by other firms, following in the footsteps of the Trust Company of America deal by E-Trade, he says.
“These companies are all trying to connect the dots and provide an intuitive, seamless solution set for advisors,” Capuzzi says.
However, other firms have tackled technology upgrades by building in house. In one of the most highly publicized investments, Ron Carson spent $52 million to create a stack that fully integrates Salesforce, along with its broker-dealer Cetera's platform and those of custodians Fidelity and TD Ameritrade, and Orion Advisor Services' rebalancing tools, according to the firm. Revenue is up 243% over the last five years, says a Carson Group spokesman, and it expects to tack on $3 billion in new assets this year alone.
LPL Financial, the industry’s largest IBD, pledged to spend $100 million on technology this year alone. In fact, about two-thirds of advisors in the independent channel now have access to digital solutions, according to the research firm Aite Group. Applications include integrations with customer relationship management systems, planning and asset management tools and automated document programs.
While the RobustWealth platform is now part of Principal, the company will focus efforts on providing and delivering technology solutions using agile product development methodologies, a spokesman says. RobustWealth will keep its own branding and Kerins stays on as CEO, the firm says.
“The role of the financial advisor — a real person across the table — remains critical,” says Principal Chief Investment Officer Tim Dunbar. “But, we must combine the best of people with the best of technology to meet clients when, where and how they want to be met.”