The increasingly competitive robo-advisory space just suffered a notable failure when New York-based Hedgeable announced it was closing its investment management portal.
As of Wednesday, Hedgeable was no longer accepting new deposits, and as of Aug. 9, client accounts will move to Folio for self-directed management if their owners haven’t already transferred them to another advisor or brokerage.
“Smaller and midsize robos struggling to achieve scale are going to have difficulties,” says David Goldstone, analyst at Backend Benchmarking, which publishes The Robo Report. “Customer acquisition costs are higher than many people expect.”
Indeed, WorthFM, a small robo-advisor focused on women, announced its closing in December.
Hedgeable, which was one of the first robo-advisors, launched in 2010, is also small but not focused on a niche market. It has just under 1,700 clients (with 1,930 accounts) and $79.9 million in assets, according to its latest Form ADV filing, and its fees aren’t cheap — a 0.75% wrap fee for accounts under $50,000 in assets and 0.60% for accounts under $200,000. In comparison, Betterment charges an equivalent 0.25% and Vanguard 0.30%.
Unlike many other robo-advisors, Hedgeable “was very adamant about active management … trying to attract investors who didn’t want index funds of Betterment or Wealthfront … and even touted Bitcoin derivative allocations,” says Bill Winterberg, founder of FPPad.com, a technology consulting firm that serves financial advisors.
That less-conventional marketing did not result in many new accounts for Hedgeable.
Winterberg says the firm’s demise indicates that the “market of independent automated investment services is saturated and the players need either hundreds of thousands of accounts or millions of dollars in order to succeed.” Small digital advisory firms can’t afford to survive against the big legacy institutions or Betterment or Wealthfront,” he says.
Winterberg and Goldstone speculate that WiseBanyan, with less than 35,000 accounts and about $153 million in assets according to its Form ADV filed in March, appears vulnerable. Goldstone includes Ellevest, led by Sallie Krawcheck, on that list as well. Its Form ADV, filed in February, shows 12,371 accounts with $91.4 million in assets.
“Some independent robos will survive, but they have to reach scale,” says Goldstone. Acorns and Stash, both focusing on investing small (micro) amounts of savings, may be examples of that. Both have attracted more than 1 million savers — though not millions in assets — to their platforms, whereby investors deposit small sums frequently from linked bank accounts.
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