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Zacks Investment jumps into robo advisor race

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The newest entrant to digital advice is no stranger to investors.

Zacks Investment Management announced the launch of its own hybrid robo advisor featuring actively managed portfolios with 0.35% fees for accounts above $100,000.

The new offering, Zacks Advantage, is designed to be the robo advisor for "the sophisticated high-net-worth investor," says Scott Schneider, the platform's president.

"[Our ideal client] recognizes the value proposition of the low fee ETF automated investment advisor option but also wants their assets managed by a team of experienced wealth managers who have years of experience managing through bull and bear markets," Schneider adds.

The platform is built on technology from Schwab. Schwab Intelligent Portfolios, the custodian's digital advice platform, reported it reached $10 billion in AUM in September.

Zacks Advantage will build portfolios from a collection of 450 ETFs, picked from a variety of fund providers by Zacks' own researchers. In order to be selected, funds needed at least three full months of performance history and a minimum of $20 million in assets and will be reviewed quarterly, the firm says.

Zacks, known for its investment research and stock picks advice, claims a key difference between Zacks Advantage and competing platforms is its active management.

"Most of our peers have a set-it-and-forget goal based investing model," Schneider says. "We take a wealth management approach to automated investing and use modern portfolio theory as a core strategy but also seek to enhance long-terms returns with an active management overlay."

It's for this reason that Schneider is confident that the Zacks offering can find a niche amid a growing list of competitors in the digital wealth management space — even though it represents a fraction of the total wealth management market.

"Many technology start-ups burn through capital quickly, fail to scale to profitability and end up as another start-up casualty," he says. "Zacks Investment Management has been in business for many decades and we plan to be around for many more."

Currently, the digital platform is aimed at retail investors, Schneider says, though the firm has discussed the possibility of institutional applications. "For now, we want to focus on our core retail business and help our investors secure their financial futures."

Zacks' robo launch has garnered some interest among industry observers too.

"Zacks is a multi-dimensional player, well-known for tracking corporate earnings, and better known in the institutional world than the consumer world," says Chip Roame, managing partner of industry consulting firm Tiburon Strategic Advisors. "Will this catch on in the B2C world? Not sure. It takes a lot of marketing."

Roame's firm recently noted there are 51 robo advisors in the market, collectively managing close to $250 billion.

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"The market at this point is far too slim for the number of robo advisors that exist today," Roame says. "None of them can be making any money, aside from offerings that are part of broader client relationships — like Schwab, Vanguard and TD Ameritrade's robos."

Schneider notes that the firm has "structured Zacks Advantage as an extension of Zacks Investment Management and the synergies between our two offerings allows us to operate in a highly sustainable long-term business model."

Taking an active management strategy does differentiate the Zacks robo, says Lex Sokolin, global director of fintech strategy at Autonomous Research.

"They join Hedgeable and Polly Portfolio in the anti-passive camp, and will likely convert some of the existing traffic from the site to robo clients," he says. "Vanare's client Daily Worth, for example, also has a media presence that leads to conversion into a robo advisor product."

The Zacks launch shows just how the digital advice market will develop in time, Sokolin adds.

"There will be thousands of robo advisors, in the same way we have thousands of RIAs and thousands of banks today," he says. "However, the market will be very asymmetrical — with some brands commanding large presences, and others being niche to particular populations."

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