Two leading choices have emerged among robo advice platforms for institutions: BlackRock's FutureAdvisor, and UBS-backed SigFig.
On Tuesday, Wells Fargo announced that SigFig will power its digital advice offering.
"This offering will mark an important step forward in delivering financial advice to the next generation of investors, while building a long-term pipeline for our full-service business," said David Carroll, head of wealth and investment management at Wells Fargo.
Earlier this year, Wells Fargo outlined a pilot program to introduce robo advice in 2017 through its community bank unit. The platform would eventually be available to all of its brokers and clients, executives said.
SigFig CEO Mike Sha says the partnership with Wells was months in the making. "You can imagine, given the nature of these relationships, it takes quite a bit of time to figure out integration. It's very complex."
Sha is endlessly optimistic, buoyed by the string of good news this year for the San Francisco-based startup — particularly the blockbuster partnership with UBS in May — and the wide potential for digital advice to grow.
"We obviously are excited to be in a partnership with Wells Fargo," Sha says. "They do reach quite a staggering amount of consumers. Over the next couple of years, we expect to be touching a majority of the market though our partnerships."
In addition to its relationship with UBS, SigFig this year announced a partnership with Pershing. The startup also received $40 million in funding from a consortium of investors including Eaton Vance, Comerica and New York Life.
Comparatively, FutureAdvisor has lined up agreements to provide its technology to U.S. Bank, BBVA Compass, RBC Wealth Management and LPL.
If FutureAdvisor is Pepsi, SigFig is Coke, Sha says.
"I think our platforms are quite different. As time goes on you'll start to see how our platforms are pretty different, and why those firms have chosen us."
However, Sha says he doesn't see his firm in a race for clients with FutureAdvisor, which is also based in San Francisco.
"If you look at the state of retail banking, it's not like companies who were first with online banking won that game," Sha says. "It just became essential to have a compelling consumer offering in digital. The market changed in the last 24 months. Then, the state of digital advice was still exploratory. Today, if you're a large bank or brokerage ignoring it, you're missing out on the most important trend of the decade."
LEGACY TECH CHALLENGE
For Wells, the deal ended the debate on whether to buy a digital advice platform or build one in-house.
"It speaks to the challenges of launching an in-house solution, particularly for banks," says Celent senior analyst Will Trout. "Multiple product stacks, underpinned by legacy tech, make it tough to roll out an automated platform capable of delivering quality and consistent advice."
He says, while it's possible to work at the account or product level, it's difficult to operate at the client level without a consolidated platform.
"A robo adviser offering needs to be integrated seamlessly into the client value proposition if it is to add value," Trout says.
Devon McConnell, head of digital and direct investing at Wells Fargo Advisors, says her firm's process of selecting a platform was thorough and not influenced by others.
“When I came in, we looked at overall landscape, we looked at all the options,” she says, explaining that SigFig’s solution ultimately provided the flexibility and customization Wells was looking for in a platform. “Our approach was driven by the best way to deliver the highest quality product possible to our clients, not by our competitors' decisions as they enter the market.”
“We want to make sure we serve all of our clients' investing needs at the critical points in their life — this offering helps us meet the needs of emerging investors at a time when they are ready or need help assessing whether they are ready to take that first step towards investing."
Also promoting the trend of partnerships between financial firms and fintech providers is a strategy to make digital advice a tool for advisers instead of a direct-to-consumer standalone product, says Sean McDermott, senior analyst at Corporate Insight.
"This would further explain why the wirehouses are willing to partner with firms like FutureAdvisor and SigFig despite the fact that they also have licensing agreements with some of their direct full-service competitors," McDermott says.
"Each firm believes that their advisers will add value to the technology, differentiating the service from competitors that license the same software. So far, FutureAdvisor and SigFig are clearly the platforms of choice for the biggest full-service brokerage firms. This speaks to the power of having a trusted industry stalwart like BlackRock or UBS in your corner."
RETAIL ROBOS 'NOT DEAD'
The success of SigFig and FutureAdvisor is confusing to some in the industry, notes Lex Sokolin, Autonomous Research's global director of fintech research.
"Neither of them started as adviser-focused businesses, or had that architecture, so many of us are left scratching our heads why the largest institutions have picked them," he says.
Among wirehouses, Sokolin notes, SigFig and FutureAdvisor have a strong lead because they are well-capitalized and know how to do an enterprise deployment. "There is space for others, like a surprising entry from Addepar or one of the independent-focused firms. But they will need to show both capital and resources to compete," he says.
But there still is room for deals in the wealth management segments of independent RIAs, independent broker dealers, large banks, small banks and online brokers, he adds.
"Each market needs a different approach because the infrastructure and operations are different. The independents are pretty much split between Jemstep, Vanare, Riskalyze and a few others." However, there is very little space left, Sokolin says. "Online brokerages are also done, most of them are launching internal solutions since they own trading. As for the bank space, that's still pretty wide open."
Sha agrees, and adds that questions about differentiation between platforms will quickly subside as digital advice becomes a standard offering.
"Once we start to penetrate the multi-trillion dollar wealth management industry, it won't be a one-size-fits-all approach," Sha says. "We all started in a similar space — low cost ETF portfolios —but we will all choose to expand our platforms."
Sha is even ready to defend the retail robo market play despite the opinion of many observers that competition is too intense for an independent platform to survive.
"I don’t think it's dead," he says. "The wealth space is very diverse, and there are lots of different solutions. If marketshare was all that mattered, we wouldn't have RIAs or IBDs. So I don’t think it's doom and gloom for B2C. The big incumbents will certainly gather assets. But that doesn't mean you can't build a decent business going direct to [the] consumer."