Robo News: Q1 2019

Robos expand into banking and cash management, as high yield account options have proliferated among direct to-consumer fintech platforms

Wealthfront joined the growing trend of fintech companies that offer high-yield accounts designed for cash savings. Betterment announced their cash management program late last year, as did trading app Robinhood. Robinhood launched its product with an aggressive 3% interest rate, but made a regulatory miscalculation and quickly pulled their product offline to reconfigure. Although these savings vehicles often appear very similar, there can be important differences. For example, Wealthfront places funds in FDIC insured bank accounts, while Betterment’s product invests funds in a conservative fixed income portfolio.

Meanwhile, SoFi, who got their start in consumer lending, has been aggressively expanding to other financial channels. Their bank account product is free of charge, offers high interest rates, and even reimburses third-party ATM fees. SoFi made waves in recent months by offering free trading within their self-directed accounts, reducing the managed account fee to 0%, and releasing proprietary ETFs that will initially have a 0% expense ratio.

“Attractive offers from fintech companies will continue to ramp up competition amongst traditional financial advice firms and banks”

M1 Finance, a lesser known digital advice player, also launched a cash account with a debit card this past quarter. Stash, a micro investing app, continues to create features to build on their success with young investors by launching a free debit card product where spenders earn rewards in the form of fractional shares of companies or ETFs. Acorns, another company who launched a spending account last year, offers promotions where participating companies will contribute to a user’s investment account when qualifying purchases are made.

All said, the expansion from digital investment advice to cash management and banking is well underway. Attractive offers from fintech companies will continue to ramp up competition amongst traditional financial advice firms and banks.

More robo advisors are offering exclusive or premium features to differentiate themselves

On March 28th, Schwab broke the mold by announcing a switch to subscription-based pricing for their digital advice product, which comes with unlimited access to CFP® advisors. Many are questioning whether Schwab’s new subscription pricing will usher in a paradigm shift in the way financial advice is paid for in the U.S. With a one-time planning fee of $300 and an ongoing fixed monthly cost of $30/month, Intelligent Portfolio Premium will be increasingly cost-effective at higher asset levels, when compared to a traditional AUM-based fee.

“Many are questioning whether Schwab’s new subscription pricing will usher in a paradigm shift in the way financial advice is paid for in the U.S.”

In other news, Wealthsimple, a Toronto-based robo, introduced Wealthsimple Generation, a premium advisory and financial planning service available to clients who invest $500,000 or more on their platform. This offering is a classic example of how the lines between traditional full-service advice and digital advice are becoming increasingly blurred, as robo advisors introduce high-service products and traditional advisors further integrate technology. Adoption of automated investing products amongst banks has been a trend that continues to gain momentum. Most of the largest retail banks have already launched a robo advice product and the trend is now migrating to mid-sized banks. SigFig is catering to the banking channel and recently launched Atlas, a white-label digital advice product designed specifically for banks.  Early partners in the product include UBS and Wells Fargo. With existing customer bases and the ability to cross-sell, it is easier for a digital advice product to find success.

Fintech companies continue fundraising and engaging in new partnerships

Personal Capital had a busy first quarter, hiring a new Chief Marketing Officer and securing an additional $50 million in funding earmarked for the implementation of a new marketing strategy. Goldman Sachs, which has acquired Clarity Money and Honest Dollar in years past, expanded their portfolio of digital advice assets by leading a recent $58 million fundraising round to invest in the UK-based robo advisor Nutmeg. Ellevest, who raised $33 million in additional funding this past quarter, announced a strategy to begin targeting high-net worth investors.  Additionally, Acorns recently closed a $105 million funding round that included NBCUniversal. As part of the deal, NBCUniversal made an equity investment, secured a board seat, and will be dedicating resources to partner with Acorns in the creation of educational and financial content. In total, Acorns, Personal Capital, Ellevest, and Nutmeg raised nearly $250 million in capital this past quarter, proving there is still an appetite for investing in an expanding digital advice industry.

“In total, Acorns, Personal Capital, Ellevest, and Nutmeg raised nearly $250 million in capital this past quarter, proving there is still an appetite for investing in established digital advice players”

Also of note this quarter, was an announcement that Plaid purchased Quovo for a rumored price of $200 million. Although Plaid and Quovo are not directly in the business of digital advice, both companies’ aggregation technology is popular with fintech platforms that want to enable users to connect and view their third-party accounts. In other acquisition news, Envestnet acquired Money Guide for $500 million, adding to their stable of technology assets. The acquisition could help them create a more robust digital advice offering for advisors.