Robos Eye Big Prize: $500B Advisor Market

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Beware the siren's call: the alluring market for advisors needing a robo solution is still largely untapped and potentially lucrative, but navigating a path to market share remains fraught with peril.

"The land grab for a piece of the advisor market is going on now, but the competition is intense and the path to success is narrow," says Alois Pirker, research director for Boston-based Aite Group.

To be sure, the prize is a glittering one: the market for robo platforms used by advisors could reach close to $500 billion by 2020, according to a report by Cerulli Associates. And the prospects are plentiful: only 5% of advisors have made the decision to launch a digital advisor service, according to an Aite survey taken last fall.

Not surprisingly, this kind of upside potential has attracted a swarm of attention, ranging from corporate financial service giants to mid-size industry stalwarts as well as plucky start-ups.

Invesco, the Atlanta-based investment manager with around $775 billion in assets, is the newest entry in the crowded field, having acquired eight-year old robo advisor Jemstep for an undisclosed sum in January.

Going forward, Jemstep and its new corporate parent face difficult challenges — and potential rewards — that epitomize the gauntlet robos competing for the advisor market are confronting.


For starters, there's the formidable size and quality of the competition.

BlackRock, the largest U.S. asset manager with approximately $4.5 trillion, acquired robo firm FutureAdvisor last year, and has already nailed down digital deals with RBC Wealth Management and BBVA Compass, one of the country's largest banks.

Charles Schwab, the industry's largest custodian, began offering Schwab Institutional Intelligent Portfolio to advisors last year. While the company doesn't break out institutional numbers, it already has over $5 billion on its combined advisor-based and retail robo platforms.

Not coincidentally, Morgan Stanley just lured away Naureen Hassan, one of the chief engineers of Schwab's robo efforts. Morningstar also has a digital offering and Merrill Lynch and LPL Financial are both expected to unveil digital platforms for their advisors this year.

Mid-tier players competing in the B-to-B market include Envestnet, which acquired robo pioneer Upside last year and Financial Engines, which gave itself a bricks-and-mortar presence in 2015 with its purchase of The Mutual Fund Store.

Smaller stand-alones and start-ups offering digital platforms to advisors include SigFig, Trizic, Invessence, and Advisor Software.

And of course there's Betterment, one of the largest and most generously funded robo advisors, which has over $3 billion on its retail robo platform and over 200 advisors already signed on to its institutional digital offering.


"There's a lot of competition, but Invesco's resources puts Jemstep in a good position to compete with BlackRock," says Sean McDermott, an analyst with Corporate Insight's Consulting Services. "Also, by being one of the early leaders in the robo advisor space, they've had time to work out the kinks on their platform and prove they know what they're doing with actual live customers."

Nonetheless, Jemstep must prove to advisors that they've not only been able to "build a better mousetrap," but also champion open architecture, says Pirker.

"Buying Jemstep makes sense for an asset manager like Invesco to compete with BlackRock and Schwab, but advisors live and breathe integration and they're going to want to make sure those companies aren't just one product shops," he explains.

Jemstep Advisor Pro will remain an open platform, says the firm's president Simon Roy. "Open architecture is one of our core tenets."

Drawing comparisons to Schwab and Betterment, which also have retail platforms, Roy says Jemstep is "committed to the advisor model… which gives us a differentiated position in the marketplace."

Jemstep has also been able to work with a variety of advisors with a range of clients — "not just the mass affluent," Roy points out — on TD Ameritrade's VEO Open Access platform, which was on display last week at the custodian's annual conference in Orlando.


Transparency is also "a major driving force" for advisors, who don't want to see Invesco products favored on the Jemstep platform, McDermott says.

Asked how he would reassure financial advisors that Invesco wasn't getting special treatment, Roy said it wouldn't be in the company's interest.

"Invesco is dedicated to servicing advisors, and technology is a critical component to help them meet their needs," Roy says. "By providing a suite of services including investments, consulting and a field sales force, Invesco will strengthen their relationship with advisors."

Jemstep and other robos vying for advisors business will also have to compete on cost, guarantee that client data is protected and go beyond investments to offer software for client acquisition, digital account openings and client relationship management, according to McDermott.

Customizing a client's front-end digital experience for advisors will also be critical, Pirker adds.

"A robo offering a one-size-fits-all for an advisor's white label solution will have a hard time," Pirker says. "If they want to work with big firms they will need to be nimble."


Brand recognition is also an important consideration for advisors, argues Tom Kimberly, general manager for Betterment Institutional.

Indeed, Kimberly, the co-founder and CEO of Upside who joined Betterment late last year after his company was sold to Envestnet, says he is currently overseeing a strategic branding review at Betterment Institutional.

Thought leadership, event marketing, public relations, online marketing and social media will be included in the company's branding strategy, he says. Betterment will pitch itself as a "fully integrated digital solution" Kimberly says, while reminding advisors that it is also a custodian.

The B-to-B market for robos has tightened up, Kimberly argues, with increasingly less room for companies seeking a "second mover advantage."

Roy, not surprisingly, disagrees.

The South African-born executive sees "a long road ahead" for digital firms seeking to stake out market share.

"Are there a significant number of digital solutions available for advisors? Yes," Roy says. "Are there digital advice platforms that can serve the needs of large organizations? Very few."

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

© 2016 SourceMedia, Inc. All rights reserved. Content originally published in On Wall Street. No further distribution, reuse, or republication permitted without the written consent of SourceMedia Inc. For more from On Wall Street, go to:

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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