Swell Investing, a digital advisory firm that specializes in socially responsible portfolios, is closing down. It stopped accepting new clients and deposits as of Wednesday and will cease operations on Aug. 30, according to a notice on its website.
Investors are advised to transfer their funds to another investment platform by Aug. 15, to the same type of account, or to a bank account by Aug. 30. IRA account holders are advised to begin that process by mid-August. Otherwise Folio, the robo’s custodian, will sell out account positions — which could result in tax penalties if the account has capital gains and early withdrawal penalties for retirement investors under age 59-1/2.
“Swell was not able to achieve the scale needed to sustain operations in the current market,” reads a notice on the robo-advisor’s website signed by The Swell Team.
The robo-advisor, which launched in May, 2017 after an incubation by Pacific Life, had amassed just $34 million in assets under management and 14,122 accounts as of April 9, 2019, according to its latest Form ADV filing with the Securities and Exchange Commission.
David Goldstone, research analyst at Backend Benchmarking, which publishes The Robo Report, is not surprised by the news of Swell Investing’s demise. “The digital advice market is maturing. Independent players who have not reached scale or have not been acquired by larger companies may be in trouble,” says Goldstone.
“Robos have low costs and low margins and have to reach scale to reach profitability,” Goldstone explains. “Swell was late in launching and the industry is extremely competitive.”
Swell was also one of the most expensive robo-advisors, charging a 0.75% annual fee, but had a low $50 minimum.
It is one of several robo-advisors that didn’t survive. Two women-focused investing robos, SheCapital and WorthFM, closed down in 2016 and 2018, respectively. Hedgeable closed last year and Qplum, an AI-driven asset management robo, earlier this year. Also earlier this year, WiseBanyan was acquired by Axos Financial.
There are not many independent independent robo-advisors left, says Goldstone. He expects large independent incumbents like Betterment, Wealthfront and Personal Capital will continue to expand their platforms, though it’s unclear if they’re profitable yet, as will the robo-advisor divisions of traditional financial firms like Fidelity, Merrill Lynch, Vanguard and JPMorgan, which recently launched its robo-advisor. Goldstone is also optimistic about Acorns and Stash, known for micro-investing on behalf of millions of customers.
He’s wary about the future for Ellevest, a robo-advisor whose goal is to help close gender money gaps, though it has close to $300 million in assets and over 34,000 accounts, and he’s waiting for Goldman Sachs to introduce a full-service robo-advisor under its Marcus by Goldman online banking division.
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