BlackRock said it is acquiring digital wealth management firm FutureAdvisor, joining the ever more crowded ranks of robo advisors.
The San Francisco-based FutureAdvisor currently has $600 million in assets under management, according to a spokeswoman.
The deal, announced Wednesday, is set to close later this year. Though terms were not disclosed, the Financial Times reported that the deal valued FutureAdvisor at between $150 million and $200 million.
Through the acquisition, BlackRock hopes to get brokerages, banks and other financial institutions to use its beefed-up digital platform to serve investors, particularly the mass-affluent who represent 30% of total U.S. investable assets, the firm said.
BlackRock, which has $4.72 trillion in assets, said that FutureAdvisor would complement the firm's investment and asset management capabilities.
Tom Fortin, Head of Retail Technology for BlackRock, said in a statement that "we believe that our combined offering will accelerate our partner firms' abilities to serve the mass affluent in a convenient, scalable way."
BlackRock said that FutureAdvisor would operate within BackRock Solutions, the firm's investment and risk management platform unit.
FutureAdvisor's co-founders, Bo Lu and Jon Xu, are set to stay with the firm following the acquisition, a spokesman said.
By switching its stance toward serving the robo space, the world's largest asset manager is demonstrating how important it is to have such a capability, says Alois Pirker, research director for Aite Group's Wealth Management practice.
"Firms that are in that position of producing low cost products and not running robo strategies themselves are missing out in the industry shift of assets to those products," Pirker says.
Given BlackRock's decision to announce the acquisition through its advisor tech arm, Pirker expects the offering will be aimed at advisor clients rather than direct to consumers.
"That's the same game that Fidelity is playing with Betterment and possibly e-Money, and the same game Envestnet is playing with [financial software firm] Finance Logix and [RIA online platform provider] Upside," he says.
Pirker adds the success of Vanguard's robo offering may have prompted BlackRock's purchase. Vanguard's Personal Advisor Services has accumulated over $10 billion in assets.
"In the past few quarters BlackRock had a hard time keeping up with Vanguard on the new money side. The ability to go direct to consumers with a low-cost product is essential when the robo trend is shifting somewhat how investing is perceived in the market. If you are mostly linked to advisor distribution, and advisors are shifting attention upmarket to bigger clients, you risk losing out on the mass market that robos have set out to capture."
The question of who's next to be acquired will come down to cost, Pirker adds, expecting that Wealthfront and Betterment will remain standalone brands, partly because of their costs due to funding they've received.
"For a firm like BlackRock, gaining assets is not about the acquisition, it's the know-how, the platform and possibly the scale they put on top of the platform."
--With additional reporting from Suleman Din.
