As digital advice firms look to grab trillions of dollars in net new assets over the next few years, one of the industry’s pioneers is calling it quits.
Hedgeable, a New York-based robo advisor that caters to high-net-worth clients, unveiled plans to close its automated investment accounts. The firm, which manages $80 million in client assets, will stop taking further deposits, cease trading and shutter its management portal by August 9.
“Hedgeable is restructuring, and we have decided to discontinue our regulated investment management business,” according to a company release. “This hasn’t been an easy decision, but we believe it’s the right one.”
Founders Matt and Mike Kane declined to comment further, but acknowledged that the twin brothers are still actively managing a separate startup that offers web services called Hydrogen.
“To be clear, Hedgeable is not shutting down, selling, merging, filing for bankruptcy or insolvent,” according to the release. “We are simply removing our SEC registration within 30 days, and thus our automated investing platform will no longer be able to operate thereafter.”
Folio Investments, the firm’s custodian, is offering self-directed access to accounts for the rest of 2018, according to the firm. There will be no transfer fees, and Folio will not charge a monthly account management fee through the end of 2018.
Hedgeable had tools focused on serving HNW clients, such as an artificial intelligence-powered system intended to automate tax management for the wealthy.
“You have to go on what’s making money,” says Grant Easterbrook, co-founder of Dream Forward. “Out of all the [pioneering] robos that launched, Hedgeable was different because they offered tools with more sophisticated offerings — more than just the typical ETF or mutual fund. The technology they built, they started to sell to institutions and just evolved.”
But the firm had difficulty in attracting enough wealthy clients. It listed only 40 HNW clients with $12 million in assets on its latest Form ADV, filed in June. The average client account was around $47,000.
The firm first registered with the SEC in 2009, per the Form ADV.
The closure could represent more about the state of fintech funding in the robo space than about the robo business model itself, Easterbrook says.
“The story about revenues and growth model for investors is that even if the robo model is going well enough, you still have to justify larger and larger valuations and to do that you have to more toward where you are growing,” Easterbrook says. “You have to stay on the startup racehorse of looking for bigger and bigger funding rounds.”
As Hedgeable closes up shop, major banks have rolled out robo offerings in the past two years, including Morgan Stanley, Wells Fargo, Bank of America and Capital One.
Joining a coterie of robo startups, those firms have attracted growing demand for digital financial services. Investable assets in digital channels are projected to top $4 trillion by 2022, according to research by the consulting firm Juniper Research.
Hedgeable, however, won't be among them.
“Hedgeable's closure demonstrates that the market for automated investing solutions is saturated, and only those with any material traction in the marketplace, or the requisite multi-million dollar marketing budget, will survive in the marketplace,” says Bill Winterberg, founder of FPPad.