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With FutureAdvisor, BlackRock Seeks to Compete With Schwab, Vanguard

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BlackRock, the world’s biggest money manager, has a message for financial advisory firms and banks that serve individual clients but don’t currently offer a robo-advisory service or want to replace the one they have: Hire us.

The firm, which has $4.7 trillion in assets, is offering firms a customized robo-advisory platform a la FutureAdvisor, the independent robo-advisor it acquired last year.

Many of BlackRock’s clients, whether banks, wealth managers or advisory firms need a “much better more credible way to compete” against Vanguard and Schwab, the “giants of robo investing,” explained Salim Ramji, senior managing director and head of BlackRock’s U.S. Wealth Advisory business, at a meeting with reporters.

One prime target for BlackRock is a “bank that wants to build out its investment capabilities with a few hundred advisors, looking to scale that in a rigorous way,” said Ramji. Another: financial advisory firms that can more easily and cheaply service clients who aren’t flush with assets.

BlackRock’s FutureAdvisor offering is “strictly B-to-B,” delivered through BlackRock’s Solutions (BRS) group, said Ramji.

To date it has entered into partnerships with three firms: Two financial advisors, RBC Wealth Management and LPL Financial, and one bank, BBVA Compass. They are either in the implementation phase, with FutureAdvisor connecting to the client’s internal systems, or in limited pilot; none has been launched yet. And when that happens, the client, not BlackRock, make the announcement. BlackRock is also in talks with other potential clients for its robo offering but no details were disclosed.

Ramji said the firm is also seeing a lot of interest from distribution partners for a digital advice solution to help comply with DOL fiduciary rule. It is “certainly an area that has piqued their interest and ours and we’re working aggressivly to have those solutions at work post April,” said Ramji, referring to April 2017 deadline for advisory firms to be in compliance with much of the new rule.

(Related on ThinkAdvisor: BlackRock Snaps Up FutureAdvisor: Could Wealthfront or Betterment Be Next?)

Eventually through its partnerships BlackRock expects to have “access to many millions and millions of customers” using its robo-advisory service, customers who want to do business with financial advisors, either through banks or advisory firms, said Ramji.

Many retail investors currently don’t have that access because they have limited funds to invest. “Today if you have very little money your only choices are a standalone digital advisor,” said Bo Lu, co-founder and CEO of FutureAdvisor. “We enable that tomorrow you can go to your bank.”

Lu said the current state of digital advice is like the early days of ecommerce, when Amazon was seen as an online seller of books and music, not selling almost everything, as it does now. Digital advice has the “incredible ability… to always be there, to run simulations for you.… We’re still in the early days of quite a long baseball game,” said Lu.

That game currently includes independent robo-advisors such as Betterment and Wealthfront but not FutureAdvisor since it was acquired by BlackRock although it will continue to service its retail customers. “Our clients are happy with the fact that we will be sticking round, “ said Lu.

That’s not the fate that Ramji foresees for independent robo-advisors like Betterment and Wealthfront. “Three or four years from now those independent robos will not be in business,” said Aramo. “They will not be able to sustain business acquisition costs.

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