What BlackRock’s Larry Fink thinks about financial technology

blackrock on technology

When the CEO of the largest asset manager talks about technology, you probably want to listen. BlackRock’s Larry Fink invested heavily over the years in the firm’s technology.

The company’s hosted Aladdin platform is used by 20,000 investment professionals around the world. It combines risk analytics with portfolio management, trading and operations tools on a single platform.

“BlackRock’s Aladdin technology connects our global investor community on a common platform,” Fink said on the firm’s Q2 investor conference call. “The scale of our trading and liquidity platform enables us to access market liquidity that few firms can, and we further enhance that scale through the Bank of America Global Capital Management acquisition in the quarter. Our data expertise allows us to turn large, unstructured data sets into meaningful investment insights, and our risk and quantitative analysis teams provide independent oversight to help identify both risk and opportunities.”

BlackRock also acquired software-driven portfolio manager, FutureAdvisor in 2015. It was the first time a major financial services company acquired a roboadvisor. More firms have entered the automated portfolio management space since, including Schwab and Vanguard. Goldman Sachs bought Austin-based Honest Dollar, a firm that focuses on retirement assets.

“We also believe that the evolving technology and regulatory landscape including the new DOL rule in the U.S., digital advice will play an integral role in increasing access and transparency for investors,” he said. “And we continue to see strong client interest in our FutureAdvisor platform, as clients look to new and innovative wealth management solutions. Clients not only turn to BlackRock to manage their assets, but also to help them understand the larger term impact of global events.”

Robos like FutureAdvisor are efficient distribution channels for distributing the firm’s iShares ETFs. LPL Financial is one of the first major financial institutions to use BlackRock’s software for its digital advice platform.

BlackRock makes no bones about its intentions to leverage technology to scale its business. For Fink, financial technology is no longer a differentiator. It’s now required to compete in financial services.

“Technology has always been a core component of our value proposition, and a significant differentiator for BlackRock,” Fink said. “As the investment landscape evolves, technology is transitioning from a competitive advantage to a competitive requirement. Those that do not invest in technology will not be able to meet their clients’ long-term needs. Technology remains a key area of focus and investment for BlackRock across all aspects of our business, to enhance our investment process, to enhance our client service, to create operational efficiencies, and our unifying BlackRock Aladdin technology platform.”

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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.”

5 trends we’re watching this week

5 trends in finance this week

[alert type=yellow ]Every week at Tradestreaming, we’re tracking and analyzing the top trends impacting the finance industry. The following is a list of important things going on we think are worth paying attention to. For more in depth trendfollowing, subscribe to Tradestreaming’s newsletter .[/alert]

1. Vanguard’s virtual RIA adds $10 billion in net new assets over last six months (RIABiz)

2. Invesco buys roboadvisor for advisors, Jemstep
(ThinkAdvisor)

3. BBVA Compass to intro robo offering via partnership with BlackRock’s FutureAdvisor
(Finovate)

4. Tech leaders and fintech: Why Amazon and Google are bound to enter finance
(Disruptive Finance)

5. An ex-Uber marketing pro weighs in on the Uberization of money debate (Tradestreaming)