Northern Trust buys a B2B robo. Will it succeed?
In a sign of the times, asset manager Northern Trust recently acquired an RIA so that it could own the digital advice platform the advisory custom built.
Its purchase of Belvedere Advisors includes the robo service Emotomy that also has functionalities of a TAMP. It’s an open-architecture system. The product will also provide access to multiple custodians and will allow advisors to either choose pre-constructed models or create their own.
The deal between Northern Trust and Belvedere Advisors is expected to close by the end of the year, the company stated. The price of the purchase and the terms were not disclosed.
Since the digital investment platform isn’t direct to consumer, Northern Trust might be catching a trend in the RIA space. “The robo market is moving away from direct to consumer to the B2B world,” says Kapin Vora, head of wealth management consulting at Capco.
The investment platform will provide the company’s asset management products to outside RIA advisors, according to Sabrina Bailey, the director of digital investment advice. Before, they would sell their products through their website or one-on-one meetings.
“The scalability is limited just based on how many people you can meet with...The scalability increases greatly with the purchase,” Bailey says.
They didn’t build the product in-house because Northern Trust needed to service their clients soon. They decided to leverage what was already in the market, Bailey says.
“Firms like Northern Trust need to meet their client demand and ‘stick to their knitting’ so acquiring a fintech makes a lot of sense to speed offerings to their client base,” says April Rudin, founder and president of The Rudin Group.
Though, the bank might be late in the game, say Martin Wolf, an M&A advisor. “This is clearly a defensive play.”
It's a high risk move to buy a robo advisor, Wolfe says, but it was necessary one in order to be competitive in the market. But why is it a risk? The culture might not match between the 130-year-old bank and the young tech firm. The economics may have come before cultural fitness.
Northern Trust was deliberate in their approach and timing, Bailey says in response. They see an opportunity in providing customization to financial intermediaries who lack the digital tools to assist clients, she adds.
But for some robos, their relationships with parent companies haven’t been successful in the past.
Just last week, insurance company Pacific Life lost a bet on socially-conscious millennials with its ESG robo because the startup company failed to scale. Northwestern Mutual bought the robo LearnVest, which later integrated further into the company and discontinued its digital advising services. The digital financial planner became an additional educational resource for Northwestern customers.
To start off, Belvedere Advisors will be an independent subsidiary of Northern Trust Investments, according to the company. The bank has $1.18 trillion in AUM, according to their second quarterly earnings.
Wolfe warns that keeping a firm separate can be interpreted as a sign of cultural unfitness in fintech acquisitions. It’s a choice by leadership to give it independence, which then further limits growth and integration of the bought firm with the parent company.
But some acquisitions grow by being independent from their buyer, despite cultural clashes that may occur. For example, eMoney Advisor, a financial planning platform, was bought by Fidelity in 2015. The founder Edmond Walters quit after differences between his entrepreneurial spirit and Fidelity’s corporate culture. He was replaced by Edward O’Brien, a Fidelity insider and their former head of platform technology.
But O’Brien tells Financial Planning that they’re stronger than ever since their acquisition. The company was able to keep its entrepreneurial spirit and remain open-architecture, he says. “This acquisition is part of a long-term strategic vision to help advisors grow their businesses, unlike others that are motivated by near-term valuations or share prices.”
Since 2015, eMoney increased the amount of aggregated accounts from 4 million to 15 million with over $2 trillion of assets on the platform, according to a company spokeswoman.
Fidelity also launched its open-architecture system FMAX in June, which integrates eMoney with the system.
The deal underscores an industry trend combining planning with portfolio management.
The largest insurance company-owned IBD and Alexa von Tobel's startup announced a new setup for the firms roughly three years after the acquisition.
The move by Alexa von Tobel’s startup to drop planning services reveals a deal marked by challenges from the very beginning, experts say.
The deal combines two giants: the leading financial planning provider by market share with the leading TAMP by client assets.
A key factor in determining cultural fitness for Northern Trust was that Belvedere Advisors’ technology was “built by advisors for advisors,” says Bailey. Northern Trust aims to buy products and services created by the end-user who understand the consumer’s needs in and out.
More institutions are expected to follow by buying fintech because digital investing is growing.
The assets managed under robos is expected to reach the $1.2 trillion mark in 2023, according to research firm Aite group.
Financial institutions will also have to decide how to bring it to market.
JPMorgan recently released a direct-to-consumer robo last month, and in that same week, Voya Financial launched a robo that went to its advisors but not their clients. Now, Northern Trust is providing the tech to outside RIAs.
Because of the number of teams leaving wirehouses for independent firms, the need for better technology such as robos, TAMPs and open-architecture systems are increasing, Vora says. “The number of buyers is going through the roof.”
According to Financial Planning’s recent tech survey, 30% of advisors believe digital platforms will change the wealth management industry and 27.5% think robos will.
Some players are beginning to stack up their technology now. Orion Advisor Services recently bought financial planning tech company Advizr last month, to compete against Charles Schwab, Vanguard, and Betterment. Earlier this year, Envestnet bought MoneyGuidePro for $500 million and also Schwab’s Portfolio Center.
“The TAMPs are becoming the Amazon of advisory products,” Vora says. He thinks more big institutions will be going after the technology in the foreseeable future.