Robo-advisers offering incentives to attract new clients

The methods the nation’s robo-advisers are using to attract new assets range from exposing how their algorithms improve performance and lower costs to straight out offering cold, hard cash.

Free robo-adviser WiseBanyan pledges $20 for new clients who sign on with the three-year-old platform and remain a client for six months. Get a friend to join? They get $20 and you get another $20.

Like WiseBanyan, Wealthfront and Betterment offer incentives for clients who refer new customers. Wealthfront allows referees an additional $5,000 of fee-free assets and Betterment waives a year of fees in exchange for three referrals.

“They are all trying to gain new customers, but robos have had a tough environment for a few years,” said Sean McDermott, an analyst with Corporate Insight. “They’re dealing with the reality that almost every major brokerage firm now has some automated, managed-account offering, and that’s one of the biggest pressures the startups and smaller firms are facing.”

Their competitive reality is evident in the numbers.

The leading digital-advice providers have attracted in total about $80 billion in assets. Incumbent firms Schwab Intelligent Portfolios and Vanguard Personal Advisor Services hold about $63 billion, or three-quarters of the total, according to Corporate Insight. The next top three — Betterment, Personal Capital and Wealthfront — have about $16.3 billion.

In their efforts to keep growing, digital advisers really are taking a three-pronged approach practiced by many traditional (think human) advisers, albeit with more high-tech touches. They’re trying to lure new clients, gain more assets from the ones they have and seek larger clients.

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Wealthfront and FutureAdvisor deploy technology to help clients view all their assets in one place, and overlays automated, managed-account tools to show clients any weaknesses in the management of held-away assets, Mr. McDermott said. These tools also can work with prospects.

Typically the robos point out areas that lack diversification, an overweighting in a particular stock or a sector, or call out the amount of fees the investor is paying in these other accounts, he said.

“It’s the convergence of aggregation technology and automated, managed-account platforms where they scan all your assets and give you feedback,” Mr. McDermott said. “Firms seem to agree these are powerful asset funnels.”

Some digital platforms also are enhancing their financial planning offerings to attract more clients.

For clients with $100,000 or more, Betterment is providing live advisers via phone or email, while Wealthfront is taking a more automated approach with its Path planning software that it integrated into its advice process last year. It’s linked to clients’ aggregated accounts and tracks spending habits so clients can dynamically evaluate how a change, such as having a baby, would impact savings for future goals.

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Each of these robo-platforms, which charge an annual fee based on assets, said their planning services have been welcomed by clients.

Wealthfront spokeswoman Kate Wauck said the integration of Path in January has helped the firm add $1.2 billion in assets since the start of 2017. The firm, which has a total of $5.9 billion in client assets, said it hit a record this week in the number of sign-ups in a single day, although Wealthfront would not disclose its specific daily client growth.

For its part, WiseBanyan continues to offer its digital advice for free, but is creating an ala carte menu of additional services that clients will have to pay for, according to Herbert Moore, WiseBanyan’s co-founder and co-CEO. Last week the New York-based platform added new functions to its only paid offering so far, its tax services, which cost clients two basis points a month.

Within about six months, the firm hopes to roll out further premium services. WiseBanyan, which has about $95 million in client assets, according to its most recent federal filing, and 25,000 client accounts, is aimed at millennial investors.

“We want to empower our clients who are just starting to invest with premium tools, rather than wait until they meet some type of asset minimum or charge them a fixed cost up front,” he said. “With this model, they’ll pay for only those [services] that give them value.”

Michael Kitces, in a webinar on Tuesday sponsored by Vestmark, discussed the challenges robo-advisers have had attracting assets to their platform.

“Millennials don’t just show up on your website and give you all their money,” he said.

He points out that it’s taken Betterment five or six years to attract $8 billion in assets, “and they’re the best player in the marketplace.”

That’s about how much Vanguard takes in every two weeks, Mr. Kitces said.

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He said robos may have to spend half a million dollars to attract about 1,000 new young clients to their platform, or $50,000 in digital marketing to get about 100 small accounts.

If these client acquisition rates of about $500 per customer are accurate, it makes the $20 that WiseBanyan offers to new customers look like a bargain.