A Wall Street sign is pictured outside the New York Stock Exchange amid the coronavirus disease (COVID-19) pandemic in the Manhattan borough of New York, April 16, 2021.
Carlo Allegri | Reuters
The fintech disruption of the status quo in financial services is for real. Robinhood and SoFi made it through to initial public offerings even if the market hasn’t been kind to Silicon Valley-backed IPOs of late. But for the robo-advisory wealth management firms that made a big splash over the past decade — looking to slash the costs of financial advice and investment management through tech platforms and use of ETFs — the exit strategy is looking more like selling out to Wall Street and wealth management incumbents than rivaling them as stand-alone competitors.
Earlier this week, Wealthfront, which was backed by Silicon Valley elites and included some investment luminaries, was sold to UBS in a $1.4 billion deal. That’s not a bad exit by any means, but falls far short of the loftiest dreams of the fintech disruptors. In 2020, Wealthfront rival Personal Capital was sold to Empower Financial for roughly $1 billion. Betterment, the third in the trio, is now alone as an independent, and was valued in a funding round last year at a similar size to the recent acquisition exits.
With a $1 billion valuation now just the starting point for being a start-up taken seriously in the venture world, the exits speak to how difficult technological disruption is in the financial services industry, even as digital adoption becomes critical to any financial services firm’s future market share gains.
The robo-advisors were right about a lot: there is a new generation of investors that was being underserved by the incumbents and looking for a digital-first approach to help them with core investment and financial planning. And among robo-advisors, Wealthfront, Betterment and Personal Capital are notable for achieving real scale, not easy to do — Wealthfront has roughly $27 billion in assets under management. Betterment has a little more, and has still been diversifying into additional financial verticals, including retirement plan services.
But today, Vanguard, which has two levels of robo-advisory services charging between 15 basis points and 30 basis points (the latter including a human advisor touch), is the leader in the space, with over $200 billion in its digital investment platform; Schwab has over $60 billion.
“Look at Schwab and Vanguard,” said David Goldstone, who has tracked the space for years in the Robo Report and is an investment manager with Condor Capital. “The majority of those clients have all been clients, existing relationships. It’s always been a much easier road for incumbents.”
Wall Street banks, without even trying, are sitting on big assets in the digital investing space. Speaking about its You Invest …….