BlackRock makes big bet on digital advice with acquisition of robo FutureAdvisor

BlackRock, the $4.7 trillion asset manager, said Wednesday that it is acquiring the robo-adviser FutureAdvisor.
With the FutureAdvisor acquisition, the asset manager plans to give its clients access to the automated investment platform geared toward providing goals-based digital advice. It represents an expansion into new territory for BlackRock as it branches out from its primary business: managing mutual funds and its iShares brand of exchange-traded funds.
“What it can do is provide overarching advice on your entire wealth picture,” said Frank Porcelli, a managing director and the head of the U.S. retail business at BlackRock.
It plans to integrate FutureAdvisor, which has more than $600 million in assets under management according to a company spokesman, onto its existing investment and risk management platform, BlackRock Solutions. The asset manager’s acquisition of FutureAdvisor is aimed at banks, insurers, broker-dealers, 401(k) platforms and other advisory firms that may want to white-label a digital-advice platform to increase customer loyalty and increase their assets.
Mr. Porcelli said the company does not plan on tacking on additional costs for BlackRock’s clients to use the robo system. Prices will not change for FutureAdvisor’s existing clients, which is comprised of individual investors.
FutureAdvisor declined to comment for this story.
The BlackRock deal illustrates one way to stay competitive in an industry that is being transformed more and more by the rising popularity of digital advice and the increasing sophistication of its underlying technology.
Only a few months ago, Vanguard released its own robo-adviser, Personal Advisor Services, which had been in beta for two years.
Charles Schwab & Co. released two versions of its own robo service, Schwab Intelligent Portfolios for retail consumers in March, and the adviser-targeted Schwab Institutional Intelligent Portfolios in June.
DIRECT-TO-CONSUMER
Currently, FutureAdvisor is a direct-to-consumer software product focused on investing for life events like college planning and retirement savings. It offers exchange-traded funds, including BlackRock’s iShares ETFs.
Robert Goldstein, chief operating officer and global head of BlackRock Solutions, said the company plans to turn FutureAdvisor into a business-to-business product and offer the platform to its partners and clients, while keeping the brand name intact. The asset manager will add portfolios, investment products and in-house tools for risk analytics and retirement to its automated investment platform.
The decision was a long time coming, according to Mr. Porcelli, who said that clients from broker-dealers and insurance companies have been asking BlackRock to offer a robo-adviser platform.
“We evaluated build and buy, but we were very impressed of the capabilities, the people and the culture of FutureAdvisor,” Mr. Porcelli said. “We thought it would accelerate our entry into the market, but with a high-quality offering.”
That’ss a sentiment that executives at many firms across the industry seem to share, such as Envestnet, which in May acquired robo-adviser Upside, and Vanare, which acquired robo-adviser NestEgg last December.
GROWING TREND
Matthew Fronczke, director of product consulting and research at kasina, said that acquiring robos is a growing trend.
“I think [an acquisition] will be especially likely for some of the smaller robo-advisers who are not able to penetrate the target market as rapidly as the larger robo-advisers,” Mr. Fronczke said. “It is a mutually beneficial relationship.”
Acquirers of robo-advisers “can also tap into this new and novel technology to improve existing client relationships, as well as gain new client relationships,” he added.
That’s exactly what BlackRock is aiming to do.
“We asked a lot of people what type of person do you think will be using it, and the reality over time is with great technology, you wind up getting used by lots of different people,” Mr. Goldstein said.
Terms of the acquisition were not disclosed. The deal is expected to close at the end of the fourth quarter.