There are millions of VC and private equity dollars circling the advice industry. And it wants to fund technologies that will simplify the work of advisors or expand the reach and understanding of financial institutions.

Take the $140 million in funding that Silicon Valley-based Addepar recently raised from sources including SpaceX backer Valor Equity Partners.

Addepar CEO Eric Poirier says the eight-year old performance reporting platform has seen the number of assets its clients hold grow from $300 billion last year to $700 billion.

"We'll be at a trillion before long," he says.

That growth trajectory for a relatively young company is catnip for private equity investors, says Drew Sievers, CEO of enterprise software firm Trizic.

"Robo isn’t the real opportunity. It’s the complete reinvention of an inefficient, over-compensated business that has investors salivating," Sievers says.

"Land and expand has been our strategy. We landed in the upper echelon, and we will expand into the broader base of financial advice practice," says Addepar CEO Eric Poirier.
"Land and expand has been our strategy. We landed in the upper echelon, and we will expand into the broader base of financial advice practice," says Addepar CEO Eric Poirier.

For Addepar, a singular focus on innovating how family offices served its high-net-worth and ultrahigh-net-worth clients is paying off, both in gaining new clients and attracting additional financial support, Poirier says.

One of Addepar's key accomplishments, he says, has been to unify data across a large breadth of assets into a single aggregation stream, a task that would usually require a family office to subscribe to several different services to pull in the variety of data needed for client planning.

"Addepar has been laser-focused the last few years on building a new category of products for wealth managers," he says. "It's a very attractive space now; there are a lot of eyes on it."

INVESTING FOR THE FUTURE
That's not to say that there isn't money for robo advice platforms — blending impact investing and robo advice garnered OpenInvest $3.25 million in seed funding from high-profile VC firm Andreessen Horowitz in May. BlackRock this month made another investment in a robo advisory firm, this time in a platform serving European investors.

But those investments are much smaller than the ones private equity is making in advisor technology, says Joel Bruckenstein, fintech columnist for Financial Planning and co-creator of the Technology Tools for Today conference series.

"Clearly, these firms believe that there is an opportunity," Bruckenstein says. "There is going to be a lot of money in motion over the next several years, and the space is ripe for disruption, so money is flowing in."

Prompting this new interest are the fee pressures facing advice firms, which also need to expand to serve a bigger, less wealthy investor market in the future, Bruckenstein says. "Investors see inefficiencies throughout the financial services industry, and they believe that many of the inefficiencies can be addressed through technology."

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"There is going to be a lot of money in motion over the next several years, and the space is ripe for disruption, so money is flowing in," says Joel Bruckenstein, fintech columnist for Financial Planning and co-creator of the Technology Tools for Today conference series.

Aspects of an advisor's workflow, such as trading, account and model portfolios, could be further streamlined by applying new technologies, says Robert Michaud, managing director and CIO of Boston-based New Frontier Advisors, which develops investment management software.

"For example, investing in fractional shares allows small accounts to be better diversified with more ETFs," Michaud says. "Advisors with portfolios that contain a lot of ETFs and commission-based pricing can quickly become overwhelmed with transaction costs. New technologies that can alleviate this burden will be very attractive for investors."

The fiduciary rule has also put a spotlight on the challenge of providing appropriate and thoughtful investment advice for clients.

"The technologies I feel investors will be drawn to are ones that find a better, more economical way to understand individual [clients]’ risk tolerance and needs, and to customize portfolios even for small, modest investors," he says.

Addepar's Poirier agrees, saying his firm's wealthy client focus was its route into the financial advice industry, but it will look to develop tools for large institutions serving smaller clients.

"Land and expand has been our strategy," he says. "We landed in the upper echelon, and we will expand into the broader base of financial advice practice."

Suleman Din

Suleman Din

Suleman Din is technology editor of American Banker and Financial Planning. Follow him on Twitter at @sulemandn.