MyPrivateBanking Blog
Daily Comments on the World of Wealth Management

Archive for April, 2016

Robo-Advisors and Market Falls: Leaders Like Wealthfront and Betterment Are Surprisingly Resilient

Tuesday, April 26th, 2016

Last Wednesday Bloomberg carried an interesting article: ‘For Robo-Advisors the Next Bear Market is Make or Break.‘ It left the question of make or break unresolved but it did have some interesting details about how Wealthfront and Betterment had fared in the first few months of this year, with Wealthfront reporting that it grew its client-base three times faster this January than 12 months previously. Meanwhile Betterment reported that client growth and net deposits had seen peaks in January and March.

The ability of robo-advisors to survive bear markets is still seen as their Achilles heel by some but the counter argument, that the application of behavioral finance insights and in robos’ outbound communication messages about consistent long-term diversified investing helps investors stay on course, seems to be gaining ground.
But isn’t there a more fundamental reason for the resilience of robo-advisors? Investors who start from scratch and grow their investments over a long period are likely to be less affected by aversion to loss(es) than a someone who gives a wealth manager a discretionary mandate for an already sizable fortune. The corollary for this though is that robo-advisors that require a minimum investment (e.g. Personal Capital - $25K, MedioBanca’s Yellow Advice - €20K) or ones with a charging structure that offers much better value for money for larger portfolios, may not have such an easy ride when the markets turn down. Moreover, perhaps there’s a penalty of success for very low cost robo-advisors and younger clients; growing their portfolios successfully and in 10 or 15 years’ time these clients will be a lot more worried about market downturns than they are at present.

 

LPL’s Partner for Planned Robo-Advisory Solution

Friday, April 15th, 2016

(by Francis Groves, Senior Analyst)

A few days ago, came the news that LPL, the major U.S. broker dealer has agreed that San Francisco-based Future Advisor is to provide its robo-advisor platform. Like other broker dealers, such as Commonwealth, LPL revealed that it was considering a robo solution last year. In our report on Hybrid Robos (February 2016), we looked at how easy it would be for established players (LPL included) would find it to create a hybrid robo/personal contact integrated model. This question is particularly acute for broker dealers as there are marked differences from a psychological perspective between approach of broker dealer client and a typical prospective user of a pure robo-advisor solution. To put it another way, loyal clients of robos and broker dealers probably expect and receive quite different user experiences. We have seen some bold, clever approaches at integrating the two on the part of some major banks but the LPL/Future Advisor initiative is a first. Future Advisor has branched out into B2B solutions (e.g. SaxoSelect and with BBVA Compass and Royal Bank of Canada) since being acquired by Blackrock in 2015. Our expectation is that the LPL robo solution will at least begin as a discrete entity with its own website but that there will be exciting opportunities a full hybrid robo/broker dealer a little further down the road.

 
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