As more and more firms latch on to a robo-adviser, one study says two more big players could be next:
State Street and
Invesco.
Silver Lane Advisors, a merger and acquisition consultancy firm to the financial services industry, released a robo-adviser study Wednesday that said automated investment platforms are here to stay, and traditional advisory firms are catching on.
But there are other players in the mix now, including Vanguard and its robo Personal Advisor Services and BlackRock, which recently acquired retail robo-adviser FutureAdvisor. Vanguard and
BlackRock differ from some of the other contenders because they have their own products to offer.
It would then be a natural move for
State Street, which owns exchange-traded-fund provider SPDR, and
Invesco, which owns ETF provider PowerShares, to roll out their own robos in order to keep up with their major competitors.
"They are probably the two most dominant players in the ETF world that don't have a strategy on the robo-front," said Peter Nesvold, managing director with Silver Lane Advisors. "It is a very natural complement, because to some degree, a robo-product is a really terrific interface with a strong line-up of ETFs behind it."
Having robo-advisers would put them within arm's reach of the retail consumer, who would have direct access to their products.
"It's a little bit like cutting out the middle man," Mr. Nesvold said.
Neither
State Street nor
Invesco responded for comment.
Mr. Nesvold said some firms may not want to jump on the robo-bandwagon for fear they would be cannibalizing their own pricing, but it is a clean step for these ETF-owning firms to build or buy an automated investment platform, he said.
"In some ways, they have an advantage," said Sean McDermott, a lead analyst for Corporate Insights. The fund companies own the underlying products, whereas start-up retail robos like
Betterment and
Wealthfront employ third-party products.
"The flip side is there might be a conflict of interest there," he said. Some investors may question that they are not getting the best conflict-free advice if their portfolios will always be stocked with the same products, as opposed to a switch in brands if one becomes better than another.
"As new players have entered the space, we've continued to grow faster," said Jon Stein, chief executive of
Betterment. "Customers continue to respond well to our customer-aligned, unconflicted model."
But retail-only robos will continue to face growing pressures.
A Corporate Insight study this year found robo-advisers were giving paid advice on $21 billion in investor assets as of July, a 34% increase from the previous year. But a recent Cerulli Associates report found robos will need to grow on average by 50% to 60% per year for the next six years to attain $35 billion each in assets under management. The firm says that level of assets is necessary to stay competitive in the business-to-consumer model.
"We think a few of them will continue to operate as direct-to-consumer, and many will find it difficult faced with increased competition," Mr. McDermott said. "We are at the intersection where you have big firms looking to make acquisitions and new start-ups open to acquisitions."
