As more advisers adopt online strategies to stay competitive in a changing market, a new deal struck between a traditional advisory firm and a Silicon Valley robo-adviser highlights how technology is disrupting the industry.
Redhawk Wealth Advisors, a registered investment adviser with a wealth management practice, and Jemstep Inc., also an RIA but with an algorithm-driven account aggregation and investment advice platform, have become partners, bringing online advice to help Redhawk's retail clients manage their investments, including funds held in their 401(k) accounts.
“Some of the other robo-adviser technologies go directly to the end user, but we wanted to meld Jemstep's robo technology solutions with the personal service that we bring,” said Rick Keast, Redhawk's senior vice president in charge of business development and marketing.
“The deal with Jemstep gives us the technology, but the adviser still owns the relationship with the client,” Mr. Keast said.
Minneapolis-based Redhawk has $200 million in assets under management, 2,000 clients and 100 affiliated advisers nationwide, one-third of whom work with retirement plan sponsors and all of whom work with individual families and couples with 401(k)s as their primary retirement vehicle.
Jemstep, located in Los Altos, Calif., which until now has only served the retail market, has $3 billion in assets under advisement and approximately 10,000 clients with aggregated accounts.
The key to the deal is scalability. An advisory practice that scales up its systems with computerized processes is better able to grow AUM while bringing in clients at a lower account minimum.
In the case of the two new partners, Jemstep's platform automates buy-sell-hold trade advice and portfolio re-balancing after assessing an investor's risk tolerance with an online questionnaire. Redhawk's advisers can then view held-away assets for clients who request it and provide IRA, annuity, life insurance, tax and estate advice.
Jemstep president Simon Roy said the co-branded platform, called Redhawk Online Advisor, is powered by his firm and covered by its Form ADV Part 2 filed with the Securities and Exchange Commission. Jemstep serves as the fiduciary to all of its online consumers, including Redhawk's current and prospective clients who use the platform, Mr. Roy said.
“There is a large group of investors who see the benefits of online technology but who also want to work with advisers,” Mr. Roy said. “We want to give holistic advice across all accounts, including 401(k)s, IRAs and brokerages regardless of where the assets are held.”
Jemstep's algorithms track 38,000 exchange-traded funds and mutual funds on a daily basis, Mr. Roy said. While the platform is built to provide strategic asset allocation with passively managed ETFs or mutual funds, Jemstep's algorithms also can make fund recommendations in 401(k) portfolios, he said.
Clients pay for advice on a subscription basis after a free trial period, Mr. Roy said. He said Jemstep shares the revenue with Redhawk advisers to compensate them for bringing clients to the service.
According to the price list posted on Jemstep's website, flat monthly fees are based on the value of an investor's retirement assets, starting with a cost of zero for assets up to $25,000, and then pro-rated at a per-month cost ranging from $17.99 to $69.99, depending on the amount of assets under advisement.
Jemstep has more partnerships with traditional advisory firms under way, according to Jemstep chief executive Kevin Cimring.