BlackRock (BLK), the world’s largest asset management company, is buying FutureAdvisor, the fifth largest robo-advisory firm, joining a growing list of giant financial companies offering automated advisory services.
BlackRock said in a statement that FutureAdvisor will operate as a business within its BlackRock Solutions technology platform, "enabling financial institutions to grow their advisory businesseses by leveraging technology to meet a growing consumer trend," but provided few other details about the acquisition, including costs. The deal is expected to close in the fourth quarter.
“The acquisition of FutureAdvisor is an extension of BRS’ mission to help clients solve their most complex investment challenges through technology," said Robert Goldstein, chief operating officer and global head of BlackRock Solutions, in the statement. Tom Fortin, head of retail technology at BlackRock, said the acquisition will “accelerate partner firms’ ability to serve the mass affluent in a convenient, scalable way.”
At the same time, FutureAdvisor noted on its website that it would continue to serve existing clients with no changes in management fees and maintain its San Francisco office.
Within the robo-advisor space, “all eyes are now on WealthFront and Betterment” as possible future acquisition targets, said Bill Winterberg, a financial planner and founder of FPPad, a website that focuses on news about financial planning technology. He expects Wealthfront will be acquired because it “wanted to be the leader in online investment services and right now has lost its lead to Betterment.”
As for potential acquirors of robo-advisors, there have been rumors about Fidelity, but it has a partnership with Betterment for its institutional wealth service. Big banks like Chase, UBS and Wells Fargo are possibilities, but they can afford to start their own automated advisory services to integrate with their current platforms, says Alois Pirker, research director at Aite Group, a research and consulting company that focuses on wealth management.
Pirker says the robo-advisor market is currently divided into three parts:
- Asset managers, including BlackRock, Schwab and Vanguard, offering their own ETFs that can be delivered via their own automated advisory services
- The service providers market, including firms like Envestnet that offer robo-advisor capacity to advisors using their platform
- Custodians, including brokerages and big banks, who are trying to get more assets under management and can offer robo-advisor services to institutional clients, including advisors, and to consumers
“As more big firms [like BlackRock] get into the robo business, that trend will accelerate and it’s not all bad for advisors,” says Pirker. “More offerings will be available to advisors, but advisors have to adapt to those strategies.”
Winterberg says advisors have to offer an equivalent robo-advisor service but also make clear that they do much more than just “turnkey asset management and stock selection… This week of all weeks they should be saying that to clients, how they create financial plans and go beyond just investments but talk about cash flow, taxes, estate plans and college planning.
“The days are numbered for $1 million asset minimums and working only for high-net-worth individuals," Winterberg said. "Sooner or later, automated services are a commodity.”
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