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Roboadvisors are automating all types of investments

roboadvisors for all kinds of assets

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.”

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5 investment industry trends behind launch of new IPOs

I like high-level ideas, especially ones that look at industry trends.  One of the best sources of these ideas for investors requires going directly to recent/upcoming IPO filings (S-1) at the SEC website. Companies write this stuff themselves to raise money — who should know Wall Street Panorama, Tradestreaming viewor understand better about an industry than the market participants?

So, the recent float of asset management technology/network firm, Envestnet (NYSE:ENV) should tell us a lot about what’s going on in the investment management industry and the companies that service it.  Envestnet’s pre-IPO filings have great information.

Additionally, recent financial services/technology IPOs like SS&C ($SSNC), Financial Engines ($FNGN) and Green Dot ($GDOT) have all traded up more than 10% since their IPOs.

Here’s are the 5 wealth management trends Envestnet says is driving its business:

  1. Increased prevalence of independent financial advisors. percentage of financial advisors have elected to leave large financial institutions and start their own financial advisory practices or move to smaller, more independent firms. We believe this trend was accelerated in the past two to three years as a result of the reputational harm suffered by several of the largest financial institutions during the recent financial crisis. In particular, according to Cerulli Associates, an estimated 44% of financial advisors were considered independent in 2009, compared to 41% as of 2005, and Cerulli Associates projects that 50% of financial advisors will be independent by the end of 2012.
  2. Increased reliance on technology among independent financial advisors. In order to compete effectively in the marketplace, independent financial advisors are increasingly relying on technology service providers to help them provide comparable services cost effectively and efficiently, according to Cerulli Associates. For example, an advanced platform technology with fully integrated tools helps reduce the need for the manual processing of data and the use of multiple incompatible technology applications, allowing financial advisors to spend more time interfacing with their clients, while also potentially allowing the financial advisor to reduce technology-related costs.
  3. Increased use of financial advisors. We believe that the recent significant volatility and increasing complexity in securities markets has resulted in increased investor interest in receiving professional financial advisory services. According to Cerulli Associates, the percentage of households investing through a financial advisor increased from 50% to 58% from August 2008 to June 2009.
  4. Increased use of fee-based investment solutions. In order for financial advisors to effectively manage their clients’ assets, we believe they are seeking account types that offer the flexibility to choose among the widest range of investment solutions. Financial advisors typically charge their clients fees for these types of flexible accounts based on a percentage of assets rather than on a commission or other basis. According to Cerulli Associates, the percentage of commission-only financial advisors declined from 18% in 2003 to 12% in 2008. We believe that financial advisors will increasingly require a sophisticated technology platform to support their ability to address their clients’ needs.
  5. More stringent standards applicable to financial advisors. In light of the economic crisis and related securities market volatility in 2008 and 2009, we believe that there will be increased attention on investor consumer protection, whether as a result of regulatory changes, voluntary industry initiatives or competitive dynamics. Increased scrutiny of financial advisors to ensure compliance with current laws, coupled with the possibility of new laws focused on a fiduciary standard, may require changes to the way financial advisors offer advice. In order to adapt to these changes, we believe that financial advisors will benefit from utilizing a technology platform, such as ours, that allows them to address their clients’ wealth management needs, manage and memorialize decisions made throughout the process, and that assists them with recordkeeping and account monitoring.

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Photo credit: epicharmus