What’s Killing the Robo Advisors?
Most independent, consumer-focused robo-advisors have struggled mightily to win market share—and it’s a big reason the failures are starting to add up. Among the recently deceased are Hedgeable, LearnVest and WorthFM and SheCapital.
Some, like FutureAdvisor, have been sold. SigFig has shifted to a business-to-business model and nabbed clients including Wells Fargo Advisors, UBS Wealth Management and Citizens Bank.
It costs at least $100 for a startup to acquire a new client, InvestmentNews notes. And that can chew through a lot of VC money. “When [the startups] were originally funded, no one really knew that the client acquisition cost was going to be that high,” Ken Schapiro, president of research firm Backend Benchmarking, tells the publication. “And now there’s a lot more competition; the incumbents all have [a robo-advisor].”
Schapiro is talking about huge firms like Vanguard and Charles Schwab, whose assets dwarf the independents’. That’s not to mention the wirehouses, which have climbed aboard as well.
Betterment, with $14 billion of assets and hundreds of advisor clients in addition to its direct-to-consumer business, is healthy for an independent. So is Wealthfront, which has $10 billion of assets. But Wealthfront’s valuation in the first quarter was down by about a third from 2014, a reflection of the challenging conditions for growth.
As InvestmentNews aptly notes, we may be seeing the writing on the wall for the small, consumer-oriented indy robos.