Robo-adviser accounts surge during pandemic: Report

robo-adviser performance during downturn

Digital advice providers were well positioned to transfer to remote work resulting in an increase in new business

Digital advice platforms are experiencing an increase in account openings amid the market volatility sparked by COVID-19, according to Backend Benchmarking’s second quarter Robo Report released Monday.

While the pandemic caused widespread disruption in markets, digital advice providers were well positioned to transfer to remote work as they are natively built for digital communication. That resulted in an increase in account openings during the first half of the year, according to Backend Benchmarking’s head of research David Goldstone.

Independent robo-advisers Wealthfront and Betterment both reported double-digital increases in account openings since the market sell-off began. Account sign-ups are up 68% for Wealthfront, while Betterment reported a first-quarter increase in account openings of 25% compared with the prior-year period. Meanwhile, TD Ameritrade saw new-account openings for its automated investing platform jump 150% from the same period a year ago, the study noted.

“Robo-advisers are bucking the idea that younger investors sell out of markets during tumultuous periods,” Goldstone said. “Instead, they are getting into the market and seeing it as a buying opportunity.”

While it’s still too early to tell how much robo-advisers are going to impact investor behavior throughout the rest of 2020, the growth in digital advice sign-ups coupled with the fact that virtual communication is a part of the new normal means that robo-advisers are clearly here to stay, Goldstone said.

On top of that, with larger independent robos, like Betterment and Wealthfront, experiencing that much growth in account openings, those firms are likely getting to the point where they’re becoming profitable and look toward scale, he said.

“Where robo-advisers are fitting into the market is a bit different now than what people originally envisioned,” Goldstone said. “They’re not competing with traditional advice, they are expanding the market for a wide swath of customers that were previously underserved — specifically younger customers, people who are just in the earlier stages of wealth accumulation.”

SigFig won the overall highest ranking for robo-advisers, leapfrogging Fidelity Go, which had been ranked the best robo three consecutive times. “SigFig won because of its record of strong performance, low fees, and access to advisers at lower asset levels than many other providers,” Goldstone said.

Notably, growth in assets under management for robo-advisers last year had developed a strong foundation for these firms to stay the course on scaling their digital advice platforms throughout the pandemic, Goldstone said. Backend Benchmarking estimates that robo-advisers had approximately $631 billion of assets under management by year end 2019.

Top five performing robo-advisers that Backend Benchmarking tracks, Vanguard, Schwab, Betterment, Wealthfront, and Personal Capital, experienced a 38% year-over-year increase in assets under management through the end of 2019, and that growth momentum is expected to trend into year end 2020 as account openings surge, Goldstone said. Vanguard headlines this growth, increasing AUM to $161 billion in 2019 compared with $115 billion in 2018.

Schwab’s robo grew to $47 billion in 2019 compared with $33 billion, largely supported by Schwab’s decision to move to a subscription-fee model with its Intelligent Portfolios Premium product, according to the study. Personal Capital, for one, grew more than 50% to $12 billion in AUM.

“We expect Personal Capital to accelerate its strong growth in the wake of its acquisition by Empower Financial,” the study noted. Empower’s $1 billion acquisition of Personal Capital will establish the largest business-to-consumer acquisition to date.

The research firm best known for its quarterly “Robo Report,” analyzes the allocation and performance of the portfolios of each digital adviser the firm tracks. The new ranking adds in a qualitative review of the platform, services and features to determine a more comprehensive score.