With Bryan, I discussed global trends in wealth management, humans and robo components competing with one another, and expectations for the near future.> More details
B2C and B2B Robo-Advisory: Human Touch Is Still Required, but Not for Everyone
Today, the landscape of automated investment management and algorithm-driven solutions is steadily growing. Digital financial advisor apps and services are a large slice of the whole wealth-management pie, with some distinct key players dominating the field in each of the business-to-consumer (B2C) and business-to-business (B2B) niches. Here, we present a cherry-picked list of companies that have created B2C and B2B platforms that are disrupting the modern WealthTech industry.
At lower cost, B2C platforms offer discretionary ETF-based portfolio management that can incorporate automated rebalancing, as well as tax harvesting. Nowadays, there are plenty of tech companies around the globe offering digital solutions for personal finance management. With varying fees, account types, and investment minimums, the market offers a number of software platforms for investment management to choose from.
Canadian company Wealthsimple, for example, offers clients an opportunity to invest “on autopilot,” using smart technology that does all the heavy lifting on the customer’s behalf. Along with the regular portfolio type, Wealthsimple helps clients not only make more money managing their savings effectively, but to do so in an eco-friendly way by creating a socially responsible portfolio. With a 0 USD account minimum, Wealthsimple charges a 0.5% management fee for its Basic offering, which includes 0–100k USD of investment in a personalized set of assets; automatic rebalancing; dividend reinvesting; automated depositing; and financial advisors help on demand. As a promo offer, Wealthsimple manages clients’ first 5k USD free of charge. Its upgraded service package, Wealthsimple Black, on top of its Basic offering, has a lower asset-management fee (0.4%) and tax-loss harvesting, financial planning with a dedicated subject-matter consultant, and global access to premium lounges in hundreds of airports worldwide.
Apart from fixed third-party expenses (0.5% annually), another B2C solution provider allows customers to define the asset-management fees they’re willing to pay. Similarly to Canadian Wealthsimple, US-based Aspiration has an option for socially responsible investing (Redwood Fund) available to new investors with an account minimum of 100k USD. Aspiration’s Flagship Fund targets clients who are looking for long-term growth and have at least 100k USD to start with. A high-yield checking account at Aspiration has no monthly fees and offers clients with at least 10 USD to open the account 1% annual growth.
Following Betterment and Wealthfront by managing 1.5 billion USD in AUM, Personal Capital sets a minimum of 25k USD to open an account, with asset-management fees ranging from 0.49% for customers whose wealth is 10m USD and above, to 0.89% for clients who have less than a 1m USD to invest. Compared to other companies in the B2C niche, Personal Capital’s fees are quite high. Personal Capital offers clients retirement planning (including a 401K tracker), cash-flow analysis, investment monitoring, asset allocation targeting, and upcoming-bills tracking.
A subsidiary of FOLIOfn Inc, Folio Investing is another player offering online investors to make money on mutual funds, stocks, and ETFs. With more than 160 custom-tailored portfolio options (“Ready-to-Go (RTG) folios”), Folio charges 4 USD per each transaction and 15 USD per quarter service fee for additional services (The Folio Basic Plan). Alternatively, customers can complete up to 2,000 commission-free transactions in trading windows and pay 29 USD flat-rate monthly fee with an annual discount equal to two months of fees for additional services (The Folio Unlimited Plan).
B2C robo-advisors offer clients the chance not only to be solely in charge of their savings planning, but also to cut costs due to lower asset-management fees. However, along with such flexibility comes the fact that the investor is 100% liable for his or her portfolio management performance. Usually, clients who cannot afford a financial advisor go for this type of solution.
Along with B2C and hybrid digital advice models, B2B solutions evolved from the B2C model, and nowadays present a useful toolkit for professional players in wealth management, such as banks and independent consultants.
B2B solutions are there to automate the activities performed by human advisors, rather than taking over their jobs, as the main purpose of B2B robo-advisors is to help individual and institutional financial advisors to scale their businesses.
The award-winning Motif Advisor platform by Motif Investing, meant for registered investment advisors (RIAs), allows consultants to easily create, monitor, as well as rebalance portfolios to cater to their customers’ life goals. The company charges a flat fee of 20 USD a month per each client, with neither advisory fees nor trading commissions to be paid on top. Through one-click trading and rebalancing, paperless client onboarding, and portfolio customization, Motif Advisor brings diversified portfolios for RIAs to offer clients 80% strategic asset allocation that can be custom-tailored, and 20% tactical tilts with transparent products.
Jemstep Advisor Pro is a platform that offers digital client onboarding, transparent holdings and asset allocation, a dashboard with portfolio details, Web-chat support, and seamless wealth transfer within the family. Advisors can easily integrate the product with existing in-house systems, whether it’s a CRM or existing portfolio-management tools. Jemstep Advisor Pro allows advisors to target both millennial investors’ and HNWIs’ needs.
Working with advisors, brokerages, and financial institutions, Vestmark Inc has its own B2B product. VestmarkONE Robo Solution is a digitally augmented advisor that is a great add-on to mutual fund and ETF advisory, as well as separately managed accounts and unified managed accounts. Vestmark allows advisors to streamline advisor–investor interaction in real time, as well as providing enhanced communication through a private interface.
One of the very first app hubs in history, Anaplan—a.k.a “Excel killer”—has an asset-management app that is offered through collaboration with Deloitte. The application utilizes a financial model to forecast potential future investment-management and expense categories for wealth-management businesses. Rich in features, Deloitte’s model simulates revenues (fees) and expenses for an asset-management company that invests client money in one or several of the funds that it manages. Additionally, the model computes profitability for investment funds, as well as providing account management functionality.
AdvisorEngine is another platform for financial advisors that promises to “power growth.” Co-founded by Rich Cancro and Vladimir Baranov, the company offers a white-label solution that has an intuitive client portal, simple workflows, integration with popular trading platforms, and electronic records across all the activities performed by advisors, taking digital compliance to the next level. This all-in-one client-centric offering brings to the table a powerful suite of financial planning tools to help businesses cater to the evolving needs of their clients in a timely manner.
In general, B2B platforms have a broader range of bonds, shares, and ETFs to choose from compared to those options present in the B2C offering. The latter might only have a limited set of available assets to invest in, and narrow down the investment choices to just five, as well as a rebalancing option once or twice a year only.
When a potential investor has more savings, he or she is exposed to larger risk. This is the main reason why those with growing wealth often want to have the option of an in-person consultation. Thus, some WealthTech players also offer a mix of robo-advisory and conventional wealth-management consultancy, creating hybrid models.
By using robo-advising platforms, RIAs have an opportunity to increase their customer base.
The future of robo-advisory
With different opinions on the future for each type of robo-advisor, we are to expect a shift in trends in digital wealth-management solutions. Here, we’ve gathered a range of expert insights on what tomorrow holds for automated investment management.
Dan Sondhelm, CEO of Sondhelm Partners, thinks that the chances that robo-advisors for end investors will replace B2B solutions are close to zero. The expert agrees that although B2C solutions have better coverage by the media and the Web, B2B firms can level up if they join forces with tech-savvy providers who tailor a system to their needs.
April Rudin emphasizes that only in Banking and Financial Services do customers dictate what the market has to offer (now, it’s more hands-on management of their portfolio enabled by algorithm-driven solutions). The president of The Rudin Group is positive that the future of FinTech is a variety of custom-tailored solutions that most clients are looking for, no matter whether they are in the B2B or B2C niche, so one is unlikely to consume the other.
Automated client-facing solutions were the start of robo-advisory; however, B2B offerings are the next logical step following introduction of the B2C model, the “second wave,” as stated by Lex Sokolin from Autonomous Research. Lex Sokolin is positive that robo-advisory will change screens, moving from the Web to mostly smartphones offering a handful of micro account-management solutions. This will represent the new image of the B2C niche.
Sebastien Meunier from French CH & Co. agrees with the prevailing opinion that both types of digital advice models will continue to exist. The expert says that we are unlikely to require humans to suggest to us, investors, basic things, or to help us manage relatively small amounts of wealth. However, when it comes to high-net-worth individuals, a human touch is still preferred as the stakes are much higher. The same is true for complex portfolios that are spread across multiple geos and comprise a variety of investment products.
To sum up, the main difference between B2C and B2B solutions lies within the stake in the outcome. On the one hand, in the case of B2C platforms, the investor himself makes informed decisions on where to put his money based on software dashboards. On the other hand, when a customer decides to allocate his wealth through an experienced CFA, he delegates this responsibility to a trusted consultant, who, along with automated suggestions, applies his industry expertise to suggest a best-case scenario of asset allocation. When it comes to HNWI, they always prefer to speak with a CFA whom they personally know—a consultant who is aware of all their needs and life goals and can build a custom-tailored portfolio of assets to meet them. This is another reason why B2B platforms are still there in the market. Digital tools equip CFAs with powerful suites to effectively manage their VIP clients and save time on routine tasks performed daily.
Based on existing trends in robo-advisory—technology that enables easier asset allocation with a pinch of human consulting on top—we might see the future of wealth as a synthesis of digital advice, automation, and human-to-human interaction, with investors choosing options that match their aspirations and specific life goals.