Market volatility fails to dent investors' attraction to robo-advisers

Automated investment sites enjoyed a 57% jump in assets under management from December 2014 through July 2015

Oct 8, 2015 @ 12:36 pm

By Alessandra Malito

The summertime spike in market volatility failed to dent investors' willingness to invest — or invest more of — their assets with robo-advisers.

Automated investment platforms saw a 57% increase in assets under management between December 2014 and July 2015, according to a recent Corporate Insight study, “Next Generation Investing 2015: Digital Advice Matures."

The growth reflects both client acquisition and additional investment by existing clients.

"The fact that the market has been flat this year ... clearly something else is driving that growth," said Sean McDermott, an analyst with Corporate Insight. "Clients are pouring their money into these services."

Wealthfront and Betterment have led the pack, but other robo-advisers have enjoyed success as well. Tomas Pueyo, vice president of SigFig, said it also has to do with client participation during this downturn. He said there are two parts to the growth in managed account assets: having more clients join the platform and having existing clients contribute more.

"When the markets start going up again, we are going to see these numbers climb dramatically," Mr. Pueyo said. "The fact that the market has gone down only hides this growth."


The fact that the platforms are seeing interest leads Mr. McDermott to believe acquisition activity in the business may pick up. The business-to-consumer model has proven to be a difficult business strategy, and many robos have either incorporated a business-to-business model or been picked up by larger financial institutions. BlackRock, for example, acquired FutureAdvisor earlier this year, with plans to turn the originally retail robo institutional.

Industry naysayers believed robo-advisers were doomed when markets started to slump. But when a market correction occurred in late August, robo-advisers steered clear of the mess.

In fact, these platforms said clients aggressively invested more into their portfolios, confounding critics who expected to see withdrawals. SigFig, for example, saw six contributions for every withdrawal.

"During the recent volatility, we experienced a higher number of new customer sign-ups than usual," said Joe Ziemer, spokesman for Betterment. In January, the company managed $1.1 billion. Today, that number stands at $2.7 billion.

Wealthfront officials were not immediately available for comment.

Mr. McDermott warned that this doesn't mean robo-advisers are completely out of the woods just yet. If markets continue to plummet for a few months straight, the platforms' success may be questioned.

"It is unproven right now," he said. "A prolonged bear market, which a lot of people are saying is on the horizon, I think will definitely test these firms."


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