Future of Investing

Investment companies are launching ‘robos for advisers’ offerings

  • Independent advisers are increasingly working with larger companies to handle back office and asset management functions.
  • Newer advisers may feel a partnership with a larger company is a necessity, but to larger, more established players, building an in-house robo-adviser is a way to differentiate.

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Investment companies are launching ‘robos for advisers’ offerings

While the robo-advisors initially disrupted the market for consumers, now, larger players are amping up their business-to-business offerings by offering robo and back-office services for advisers.

Betterment for Advisors, offers advisers a technological platform that handles onboarding, portfolio management and fee collection, and a suite of visual tools for the advisers’ customers. It’s a way independent and early-career advisers can get a jump on tech without having to develop it themselves. It’s also a revenue stream for large tech companies like Betterment, which charges consumers 0.25 percent of assets under management, and will collect any fees the adviser charges on top of that.

“If you were a smaller registered investment adviser, you would be piecing together a number of service offerings,” said Joe Ziemer, vp of communications at Betterment, which currently has 400 institutional clients using the platform. “We can offer a plug-and-play one stop solution.” 

Dustin Saldarriaga, 33, who plans to open up his own financial advisory practice next year, said he sees the appeal of working with a larger company to handle the back office and asset management functions, allowing the adviser to focus on financial planning.

“It’s a huge benefit for me to focus on topics like maintaining a budget looking at your spending rather than whether it’s necessary to rebalance your portfolio, or ‘do I need to look at the tax implications’,” he said.

Saldarriaga’s views are symptomatic of a larger trend in the industry which sees asset allocation increasingly commoditized — the result of newer players in the industry driving down costs. Working with a tech company to handle asset allocation and back-office functions lets advisers focus their time on the client’s overall financial health.

“I think for the world of advisers, their biggest commodity is their time,” said Grand Easterbrook, analyst and founder of 401(k) startup Dream Forward Financial.

Betterment isn’t the only company offering this type of service (other players include Charles Schwab and CLS Investments), but it was one of the early entrants in this space, launching its institutional product three years ago. Betterment says its service helps bring newer advisers into the market, without burdening them with the tech they may not have the resources to offer. And for larger investment advisory firms, Betterment said its tool is being used as a means to recruit younger advisers in a field whose average age skews older.

As Tearsheet reported last week, embracing tech is becoming a requirement for advisers as they compete with low-cost automated offerings. But while Betterment lets newer advisers add tech to their service offerings, it also amps up the need for advisers to offer real value to their customers based on planning expertise.

“The benefit is that it lowers the barrier to entry, but that’s a danger as well,” said Michael Ciccone, associate vp of Tradition Capital Management. “Anybody can sign up for these services and utilize the same portfolios and the only differentiation is the service you’re providing on top of that.”

For Ciccone, who operates a legacy business where most of his client base holds $1 million to $3 million of investible assets, building his own robo-adviser was a better way to differentiate. “Our biggest issues with working with someone like Betterment is the lack of customization — you’re using their portfolios, and while they offer some customization, you’re stuck with more or less vanilla ETF low-cost portfolios other robos are offering.”

Still, to Saldarriaga, Betterment would likely offer most of what prospective clients would need. “I don’t know how important it is to non-affluent clients that their investment manager will be able to pick stocks and customize their portfolio — I think that for most people, having investments in a simple, diversified group of funds is sufficient.”


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