Search Results for: robo

No lumber, no slumber: Canadian robo steps up

As I point out in my recent report on robo advisors in Canada, price points for digital advisors are on the high side, even for the lumbering Canadian advice market. Especially as these robos are not known for standout service, as other bloggers have noted.

So should it be a surprise that Invesco Canada has developed plans to roll out Jemstep in Canada, the digital advice service the parent company acquired in January 2016?

Opportunity beckons

The truth is that the roll out has relatively little to do with the small Canadian market, and everything to do with the US, and eventually, the UK, markets. Invesco has been digesting Jemstep for more than a year now, quietly making Jemstep’s robust aggregation and client servicing functions available to those advisors who want them.

Fine tuning is fine, but at some point, it’s time to go big. With prices for robo tech on the wane, there is pressure on Invesco top brass to make something of this acquisition. Indeed, Peter Intragli, CEO of Invesco Canada and head of North American distribution, signaled this launch a while back. It is also worth noting that stand alone Canadian robo WealthSimple is taking a similar tack to Invesco, launching in the US and hiring London based consultants to guide its UK entrance. I’ll talk more about the thinking behind both firms' move in a later post.

In the world of robo 2017, C.A.S.H. is king

For those of you who seek yearly prognostication, here we go. I see four factors or trends driving the evolution of robo world in 2017, and attempt to capture them here with a simple, suitable acronym: C.A.S.H.
  • Cross border activity: We’re now seeing robo advisors extend their reach across national borders. This is not just the case in Europe (think German-UK robo Scalable and Italy’s Moneyfarm, which launched in the UK) but in North America as well. I comment on the planned entrance of Toronto based robo Wealthsimple into the US market in Financial Planning.
  • Asset managers will continue to seek distribution, launching robo advisory platforms that enable the advisor to market their products. They’ll also want a share of advisor profits.
  • Synergies with CRM, compliance and other tech providers will deepen, as robos become more tightly integrated into the wealth management ecosystem. It’s no coincidence that two of the portfolio optimization software providers featured in my last report offer robo advisory platforms.
  • Hedge fund-like robos will prosper in an more volatile economic environment. These robos will use passive instruments to take a position on the market, and in some cases, allow users to “steer” (or apply their own views to) investment decisions.
Taken together, these trends signal the “mainstreaming” of robo advisory capabilities. Robo advice platforms are now less a “nice to have” than a core part of the incumbent advice offer. As such, these platforms are becoming increasingly bound up in the larger industry infrastructure. Those robos that seek to keep themselves distant or apart from this ecosystem will find themselves exposed, and short of cash, once the current funding cycle dries up.

In robo world, B2B = buyer beware

The success of robo advisors in commoditizing the historically manual portfolio management process is proving their Achilles heel, as I noted in my last post. Incumbents have taken over the narrative. Yet the efforts of these incumbents to build, buy and partner with the robos comes with its own risks.

Foremost among these is how to implement robo advice within a multichannel ecosystem. As discussed in the report, Getting the House in Order: Consolidating Investment Platforms in the Wake of the Department of Labor Conflict of Interest Rule, the ability to deliver consistent advice across channels has become paramount in the new regulatory environment.

This consistency requires a clear view of assets held in house, which in turn implies eliminating product stacks and their underlying technology silos. Of the big four US wirehouses, Bank of America Merrill Lynch has led the way by consolidating five platforms into one. Their competitors are still trying to solve the problem.

Regional banks, with their legacy tech and limited budgets, are going to have a hard time getting this right. Asset managers are eager to help them launch robo platforms, despite the “me too” nature of the banks’ efforts. 

It’s hard to blame these asset managers for wanting to distribute their wares. B2B sales are in their DNA. But I’d point out that their headlong rush to abet bank robo contrasts with their cautious efforts to roll out on their own platforms.

Schwab spent months and millions to launch Intelligent Portfolios. UBS has moved much more slowly, and appears to be using SigFig as a placeholder until it can achieve the technological and service clarity demanded by clients and regulators alike. Fidelity danced with Betterment before rolling out Go through its retail branches. It's tepid if not touch and go.   

I don’t begrudge asset managers for taking their time. They have their own considerations, foremost distribution. That’s why they are enabling bank robo capabilities, even if it's not clear exactly how the banks will manage this. Why not give the teenager the keys to the Audi? But with their own clients, they have to get things right. They have shareholders to answer to, and the stakes are much higher.

The Big Bad Robo Halt

Let’s pause. Take a break. No, the big bad robo halt isn’t the Betterment Brexit brouhaha I discussed in the WSJ last week. It relates to the degree to which the hype around robo has dwindled.

As detailed in last week’s webinar, robos’ ability to automate previously high touch advisory functions is proving their comeuppance, at least in startup world. The commoditization of the portfolio management process, from asset allocation to rebalancing to tax loss harvesting, works in favor of the large incumbents, with their advantages of brand and scale.

Meanwhile, product innovation efforts by independents as described in my Robo 3.0 report have gained little traction. While the robo value proposition (centering on transparency, cost, and user experience) broached by first movers Wealthfront and Betterment and others remains very much in play, incumbents have co-opted the vision.

We're not yet at the point of a fire sale, but the price tag for independent robos is shrinking fast. This is a question of deployment as well as value; among other things, it's become apparent that putting into action a store bought robo is not as simple as plug and play. I'll discuss the robo world challenges facing asset managers, banks and other incumbents in my next post.

Capital One Rolls Out a Bank Built Robo

In a blog post yesterday I took automated advisors to task for the black and white way (advisor-assisted “hybrid” model versus “digital only”) they have framed the robo debate. Imagine my surprise when I saw that Capital One’s brokerage arm had launched a platform addressing this very complaint.

The Capital One robo combines a digital interface with telephone access to advisors. It’s an advanced take on the hybrid models offered by Personal Capital and Vanguard, both of which use digital technology (iPads, smartphones and other interfaces) to enhance and scale the contribution of the individual advisor.

What these models do not do is digitize advice delivery. Yes, they deploy algorithms to develop risk based portfolios, but firms have been doing this for ages. The defining characteristic of robo (as opposed to automated) advice is the removal of the real life advisor.

Robot with Benefits

The Capital One robo or robot is a step in that direction in that it automates the entire portfolio manufacturing process, while giving investors the options of getting a wise uncle (or aunt) on the phone to discuss it. This process spans risk profiling and portfolio construction on the front end to compliance and funding at the back.

Needless to say, clients pay for the privilege, to the tune of 90 basis points. This is not much less than the average US advisor charges for his services, and it is a given that other firms will replicate this model, and at half the price. In the meantime, give Capital One kudos for being the first US based bank (Bank of Montreal, whom I discuss in a recent report, was the first in North America) to roll out a homegrown, pure play robo advisory platform.

Robo Advice Comes to Canada

Newly elected Canadian Prime Minister Justin Trudeau took heat back home earlier this year for imploring his Davos audience to recognize Canada not for its resources, but for its resourcefulness. Yet the intent of his statement was less to diminish the contribution of the energy sector to the Canadian economy than to underscore its distorting effects.

Remember, oil rich Canada passed the global financial crisis with flying colors. It took the end of the energy boom, coupled with the onset of digital revolution, to open the bank dominated financial services sector to fresh air and force a stolid wealth management industry to reckon with digital entrants.

Fees for investment management services in Canada are among the world’s highest, as are barriers to industry entry. For startups, the difficulty of taking on the Big Five banks is matched by challenges in getting funded. The small Canadian VC community is oriented more toward payments solutions and cybersecurity than investments, and no wonder: it’s tough to grow scale up fast in a country of 35 million.

Yet, as I point out in my recent report, Thawing Market, The Growth of Robo Advice in Canada, there is a lot happening north of the US border. Despite the odds, investments oriented fintech is gaining steam. It’s not a coincidence that the erstwhile Bank of Montreal, or BMO, this year became the first North American bank to launch its own robo-advisor. Particularly interesting is degree to which the lessons learned from the recent disruption extend beyond Canada’s borders to the US and other markets. I’ll talk about these lessons in my next post.

Robo 3.0: The rise of the asset managers and the robo advisor response

In Disrupting the Disruptors: RIAs, Online Brokers, and the Challenge to the Automated Investment Advisors, published back in December 2014, I looked at how traditional wealth managers were responding to the threat posed by a new generation of automated investment advisors, the so-called robo advisors. Robo for blogSince that time, much has changed in the world of automated investments. The early days of robo advisory (what I call Robo 1.0) came to an end when vertically integrated asset managers Charles Schwab and Vanguard launched their own platforms (Robo 2.0). More recently, pure play asset managers BlackRock and Invesco have entered the fray. My latest report examines the strategic motivations of these asset managers and the degree to which they can sustain the momentum created by the first generation of robo advisors. It also examines the implications for traditional investments providers, including the HNW focused wirehouses. Lastly, it asks to what degree the entrance of the asset managers will spark the launch of vastly more sophisticated and scalable robo advisory solutions (Robo 3.0) by deep pocketed technology firms and innovative incumbents.

Robo alert: The banks are coming!

robot carry money bag Given their mass market and mass affluent orientation, banks would seem obvious candidates to deploy automated investment platforms. After all, fee income remains the holy grail for banks, and robo-led delivery represents a way around antiquated systems, channel conflict and other bank shortcomings. Yet banks have stayed on the sidelines to date. Several rumored bank robo tie ups (SigFig and Bank of the West; Motif Advisors and U.S. Bank) have foundered in their hype, and Trizic, the much vaunted provider of robo technology to banks, has gone silent. Indeed, the cautious mindset of US banks has allowed a Canadian institution (BMO Bank of Montreal) to introduce the first bank robo in North America. In this context, the BBVA Compass partnership with FutureAdvisor, the BlackRock owned automated investment advisor, is significant. Note that this deal is strictly a commercial agreement, not an investment (like the one made in 2014 in Personal Capital by BBVA Ventures, the venture arm of the parent company BBVA Group). In many ways, it calls to mind the short lived alliance between Fidelity and Betterment. Does the BBVA Group (whose chairman Francisco Gonzalez, has stated that he views the future of his bank as a software company) want to learn the robo ropes, in order to build one on its own? The bank certainly has the resources to do so. Or is this a synergy driven move like the BBVA Compass tie up with payments provider Dwolla? Time will tell. Clearly, the bank must find way to reconcile its digital ambitions with its trust heavy wealth management operations. While adding a low cost robo option to its full service brokerage menu gives the customer more choice, plugging in FutureAdvisor is just a first step. I’ll talk about the challenges banks face in integrating automated investment platforms in my next post.

Invesco buys Jemstep: why asset managers are driving robo consolidation

First BlackRock buys FutureAdvisor, now Invesco snaps up Jemstep. Consolidation of the robo advisor space is heating up, with asset managers leading the way. Why asset managers? Simply put, they are keen on improving distribution and reversing the erosion of pricing power caused by:
  • Their distance from the end consumer of their product (i.e. the retail investor), which has given them limited pricing leverage as well as something of a tin ear for investor needs
  • Brutal price competition in the ETF space itself
Note that this deal, as with the BlackRock purchase, is first and foremost a B2B play. Invesco wants to secure distribution for its flagship PowerShares product by harnessing Jemstep’s robust  onboarding and aggregation capabilities. These capabilities have been a differentiator for Jemstep in the robo space since it first targeted RIAs and brokerages via the launch of its AdvisorPro platform in 2014. Time to Cash Out? Jemstep’s motivations are more obvious. Despite some success in the RIA space (in part due to its partnership with portfolio reporting system provider Orion Advisor Services), the firm has been burning cash and under pressure. Furthermore, all the hype around the B2B model (as opposed to the B2C model with its high costs of customer acquisition) cannot disguise the fact that the use of digital distribution by real life advisors is a model still untested. Fundamental questions remain at play: Should robo function as a feeder system (i.e. a means of serving younger and less affluent clients? How does one integrate automated distribution with a value proposition centered on access to a real life advisor? Also, what happens when the client ages and accrues enough assets to merit face to face consultation. Is he likely to forswear digital channels and “graduate” to the (more expensive) real life advisor? It will be interesting to see what Invesco paid for Jemstep. I’m guessing in the $100 million range, but it could well be less. Schwab was able to launch its own robo advisor, and Fidelity, Merrill Lynch and others plan to do the same. Invesco may have decided to buy, but momentum is on the side of “build”. That’s among the reasons why Personal Capital hasn’t found takers for its $400 million asking price.

Robo-advisors are not voiceless if their actions speak louder than words

Are the automated investment advisors on their heels? Wealthfront CEO Adam Nash has been out in front of the recent market correction, highlighting the value of his firm’s approach while putting the downswing in context. The heads of other automated advisory firms are weighing in as well. Perhaps more important than what these leaders are saying, however, is the fact they are speaking at all. One might say that these firm honchos must speak up, since their robot-advisors (or more precisely, their algorithms) can’t talk to clients themselves. That was a point made by Investment News and other media outlets describing investors’ jitters at the market upheavals. Fair enough. But to say that client communication is the Achilles heel of the automated investment advisor misses the point, in my view. Indeed, it speaks to a advisory business model that is about to go the way of the Minotaur. Here’s why:
  1. The savvy market participant takes the long term view. Remember, 84-year old Warren Buffett is putting money into investments that (for actuarial reasons) he’ll never see again. Clients need to ask themselves if they are investors or traders.
  2. Do clients who are investors need the counsel of salesmen, which many advisors still are? Too many advisors simply respond to market developments and lack an actionable take on the future. Where’s the value in that?
  3. In most cases, the advisor will counsel patience in the face of the storm, which does indeed make sense. But is that counsel really worth a 1% annual fee, given point #2 above?
In his writings, the satirist H.L. Mencken liked to highlight the readiness of the average consumer to settle, i.e. to accept a subpar product. This state of affairs has defined the retail wealth management business to date, as advisors have had clients over a barrel. But as clients today have more choice, advisors do too. Whether real life or virtual, advisors must market their services to a new generation of clients, one that is digitally functional, demands transparency and value, and invests for the long haul. These clients treasure action over words. They are not necessarily defined by age, but they are the future of the industry. The rest are hardly worth the while. That’s my response to the investor hand-wringing that’s taken place regarding the recent market correction, and the parallel claims that the robo advisors are about to get their comeuppance.