The excitement around the automation of investment management has been most pronounced for consumers. That’s going to continue, because as technology opens up new opportunities for investors, roboadvisors are popping up there, too.
One area that has seen a flurry of recent activity is the marketplace lending industry. Marketplace lenders are essentially dual-sided marketplaces: firms like LendingClub and Prosper attract people seeking to borrow money and match them to investors of all sorts looking to lend out their capital.
For investors, these platforms are modern-day equivalents to the stock market: each loan on the platform acts as an individual security that can be researched, and portfolios can then be built by managing risk and long term goals.
But unlike the stock market, where roboadvisors primarily buy and hold a mix of ETFs, marketplace roboadvisors must accommodate some interesting nuances. Many investors prefer to continuously monitor their portfolios, reinvesting cash returns into new loans and selling underperforming loans on secondary markets.
Roboadvisors for marketplace lending
Enter the roboadvisors. Technology firms, like LendingRobot
, are starting to introduce their own flavor of automation tools and allocation algorithms to marketplace lending investors. An investor can use LendingRobot to monitor the overall “health” of a portfolio, including current returns, forward looking returns, and average times to loan maturity. Roboadvisors can also assist with deploying capital: for example, users can build rules governing an investment strategy using LendingRobot. Using varying-levels of sophistication, roboadvisors can automatically invest and manage marketplace lending portfolios drawing from both primary and secondary markets.
If investors maintain portfolios on multiple platforms, and many do, they need to log in to each platform separately to take care of business. Marketplace lending roboadvisors provide one login environment for investors to manage their funds. LendingRobot recently introduced Dashboard, its new mobile app that gives users the ability to monitor portfolios across multiple platforms like LendingClub, Prosper, and Funding Circle. To be sure, marketplace lenders have honed their own tools to help investors manage loan portfolios, but they don’t typically work with other lending platforms.
Roboadvisors: B2C and B2B
Individuals are choosing roboadvisors
to manage their investments because they’re comfortable using automated tools. Lower fees, starting at 20 basis points on assets under management and scaling down, don’t hurt either. Also, many of today’s investors may be happy to avoid professional advisors, who they suspect aren’t always working in their clients’ best interests.
Firms like Betterment and Wealthfront have gotten most of the limelight in this sector, but there are numerous other players muscling in to get their share of wallet. While the roboadvisors' AUM shouldn’t have any of the large asset managers worried quite yet (it totals tens of billions of dollars at this point), the wider industry is definitely taking notice. Firms like Vanguard and Schwab have launched their own versions of these automated (or at least, semi-automated) platforms for their clients, while other firms, like BlackRock, have decided to buy their way into roboadvice (BlackRock purchased FutureAdvisor in August, 2015).
There’s a lot going on in automation-ville that’s impacting the lives of investment professionals, too. Take FutureAdvisor, for example: BlackRock doesn’t intend to roll out its new roboadvisor directly to clients. Instead, the asset manager intends to have its in-house advisors automate parts of their clients' portfolios. Betterment and Wealthfront, for their part, offer institutional programs to get advisors up and running using their platforms. There are also private-label roboadvisors for advisors, like Vanare, competing to arm more RIAs with their own automated offerings.
Envestnet getting in on roboadvisory
Having made eight acquisitions in the past five years, Envestnet has embarked on building a tech platform for advisors that incorporates both advisor- and customer-facing services. Fresh off buying account aggregator Yodlee for around $600 million in August of 2015, Envestnet has created a new service that equips advisors with their own roboadvisor. Called Advisor Now, the recently-unveiled offering is another step the publicly-traded financial technology firm has taken to support independent investment advisors with technology services.
“The future of the roboadvisor movement isn’t going to be stand alone robos, it’s going to be a blend of a digital movement,” Jay Hummel, SVP of Advisory Services, said
during a recent demo of the new product. “We believe the future is these institutions' being able to blend this digital movement to be able to serve a 20-year-old millennial on the exact same platform that they can serve the 70-year old retiree that’s looking for the relationship with a full human advisor. That one platform is what we call Advisor Now.”