Fresh off settlement, a robo-adviser gets more financial backing

Digital retirement adviser NextCapital wins financing from Russell Investments

Sep 3, 2014 @ 1:38 pm

By Trevor Hunnicutt

robo-adviser, morningstar, nextcapital, online advice
+ Zoom

A digital financial adviser has won a $6 million investment led in part by money manager Russell Investments, the firm announced Wednesday.

The capital infusion for NextCapital Group Inc. is a boost to the managed-accounts platform aimed at retirement plans, fresh off its winning millions in a July legal settlement with competitor Morningstar Inc.

NextCapital sits at the nexus of investment management, financial advice and technology, a niche that has drawn continued interest and financial backing from venture-capital investors in recent years.

The firm provides a portfolio management and analytics tool that provides the backbone for Russell's managed accounts program for retirement plans as well as portfolio data on websites owned by the media conglomerate Dow Jones & Co. Inc., owner of publications including The Wall Street Journal.

In July, Morningstar agreed to pay $61 million to settle a 2009 trade-secrets lawsuit by NextCapital predecessor Business Logic Holding Corp. The firm claimed its software had been illegally replicated by Ibbotson Associates Inc., a Morningstar company.

Managed accounts are particularly relevant to the retirement business because they can be a qualified default investment alternative, legalese which simply means employers can automatically funnel money from retirement plans into managed accounts.

Financial Engines is the largest managed account provider for defined-contribution retirement accounts, with $88 billion last year, followed by Morningstar, with nearly $32 billion, according to Cerulli Associates Inc., a research firm.

But target-date funds, which adjust allocation to an underlying basket of funds as individuals reach retirement, remain the most popular type of fund in those accounts.

Total assets in target-date funds reached more than $650 billion at the end of March, according to Morningstar. About seven-tenths of that money is in defined-contribution plans such as 401(k)s.

NextCapital pitches its product as being more highly customizable to the needs of an investor than those funds.

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