Pandemic fuels rapid growth for robo-advisers: Report

Pandemic fuels rapid growth for robo-advisers: Report
Robo-advisers are expanding services and growing assets at a rapid pace, further cementing their place in the financial advice industry.
MAY 17, 2021

The investor shift to managing more of their lives online in response to the pandemic has given the digital-advice industry a tailwind. 

The last year has seen significant growth from robo-advisers, according to Backend Benchmarking’s first quarter Robo Report. For example, Betterment grew its assets under management from $18 billion in 2020 to $29 billion, while Schwab Intelligent Portfolios experienced 51% growth in digitally advised assets, and Vanguard added $70 billion in robo-assets from the end of 2019 through the first quarter of 2021. 

Moreover, Sallie Krawcheck's Ellevest reached $1 billion in assets under management in March. M1 Finance raised another $75 Million Series D funding and announced it reached over $3.5 billion in client assets in March, just five months after doubling to $2 billion. 

Meanwhile, Titan Invest, the actively managed robo-adviser based in New York City, raised $12.5 million in Series A funding as the firm crossed its first $500 million in assets. Wealthfront, too, increased its AUM to $25 billion, up from $15.85 billion reported in September 2020. 

“If the last twelve months are indicative of the future, robo-advisers are not only here to stay but also expanding rapidly,” said David Goldstone, head of research for Backend Benchmarking. “Robo-advisers are pushing the boundaries between investment platforms and digital banks, as traditional banking services have become key elements of their offerings.”

Robo-advisers still have ample room to grow. In fact, only 8% of U.S. households reported having money invested with a robo-adviser, according to a Hearts & Wallets survey of 5,000 participants issued last September. 

Accelerating growth for the once-novel digital advice industry are new entrants, lower barriers to entry for investors, and expanded offerings. Stash, the micro-investing online brokerage with over 5 million customers, launched Smart Portfolios in March and Goldman Sachs launched Marcus Invest in February. 

Not long after, Merrill Guided Investing slashed its minimum from $5,000 to $1,000, making these services even more approachable for the average investor.

Rising popularity around socially responsible investing, direct indexing, and a digital-native way of life are all part of the robo-adviser’s future growth trajectory, according to the report. 

Moving forward, firms with funding pouring in like M1 Finance and Titan have promising growth, according to the report. Moreover, there is a great deal of value accruing to the average investor, including free financial planning, access to SRI options at low minimums, digital banking services, and new features like Self-Driving Money by Wealthfront, according to the report. 

“Finally, if there is one thing that we have learned from the pandemic, it is that investing online continues to gain popularity and trust,” Goldstone said in the report. “Investors can rest assured that digital investing is here to stay.” 

Latest News

Fed says 22 Wall Street banks will be stress-tested
Fed says 22 Wall Street banks will be stress-tested

Annual analysis of banking resilience has been announced.

Vanguard scores strategic wins with latest fee cuts
Vanguard scores strategic wins with latest fee cuts

The Pennsylvania-based fund giant stands to gain ground against rivals such as BlackRock while earning more goodwill from retail investors.

Duke’s Cam Harvey pegs cost of portfolio rebalancing at $16B
Duke’s Cam Harvey pegs cost of portfolio rebalancing at $16B

Research finds mechanical shifts in exposures have given an edge to hedge funds and other speculators, leading to steep costs for pension funds.

Empower extends health services for retirement plan clients
Empower extends health services for retirement plan clients

With a new suite of health and benefit services, the company has moved well beyond its beginnings as a retirement plan record keeper.

Altfest's president explains how advisors can use AI to their advantage
Altfest's president explains how advisors can use AI to their advantage

Using AI for tax and estate planning will enable advisors to spend more time with clients, Andrew Altfest says.

SPONSORED Taylor Matthews on what's behind Farther's rapid growth

From 'no clients' to reshaping wealth management, Farther blends tech and trust to deliver family-office experience at scale.

SPONSORED Why wealth advisors should care about the future of federal tax policy

Blue Vault features expert strategies to harness for maximum client advantage.