Pandemic fuels rapid growth for robo-advisers: Report

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.”