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Robos are Going After Bigger Clients

April 2, 2018

Robo-advice firms don’t want to stick to the mass affluent anymore — there’s evidence they’re now gunning for far wealthier clients, according to Bloomberg.

For example, Betterment, the largest among the automated advice startups, unveiled a tool last week allowing more precise allocations for clients who have at least $100,000 with the firm, the news service writes. In February, rival Wealthfront added a risk-minimizing tool for clients with $100,000 or more, Bloomberg writes. And late last year, the women-focused robo Ellevest, founded by Merrill Lynch veteran Sallie Krawcheck, rolled out a private wealth management option for clients with more than $1 million, according to the news service.

The automated advice firms are clearly attracted to the higher fees they can garner from the additional services offered to wealthier clients, Bloomberg writes. But they also now face competition from established firms entering the digital advice market: Morgan Stanley, Vanguard and Charles Schwab are some of the legacy financial firms that have launched their own robo offerings in recent years, attracting billions of dollars in assets while Betterment and Wealthfront have about $10 billion each, according to the news service.

But some doubt whether high net worth investors would be satisfied with mere automated advice: according to a 2016 Citigroup report, such clients “always demand face-to-face advice,” Bloomberg writes. And in Wealthfront’s case, the way the extra service was tacked on has irked investors: the risk-parity feature for those with $100,000 or more was rolled out as an option that customers had to opt out of, not opt in to, and that apparently wasn’t made clear — and it resulted in higher fees, according to the news service. It also had substantial tax consequences if the feature wasn’t turned off in time, Bloomberg writes.

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The extent of extra fees the firms could bring in with such moves remains to be seen too. Wealthfront, for example, only has about 1,100 customers that qualify as high net worth, according to the company’s latest SEC filing cited by the news service.

By Alex Padalka
  • To read the Bloomberg article cited in this story, click here.