Wealthfront’s acquisition of hybrid robo-advisor Grove probably will not have a significant affect on traditional financial advisors and the overall industry, according to top industry observers.
The acquisition won’t have “any material impact to the industry at all,” Timothy Welsh, president of Nexus Strategy, predicted Friday. After all, he told ThinkAdvisor: “Robo assets are tiny on the independent side. Meanwhile the big brands such as Fidelity, Schwab, Vanguard continue to dominate and expand their leads.”
Today, “there are no barriers to entry in the robo space as it has become completely commoditized, as evidenced that a new player (Grove) is acquired by a legacy player Wealthfront,” he said.
According to Welsh, “This development is also another sign of the desperate times to be a [business-to-consumer] robo platform, where your own tech innovation is being eclipsed by a few guys in a garage with an algorithm and you don’t even want their clients or their AUM as those are non-profitable.”
Welsh was referring to the fact that while Grove’s product team is being gobbled up by Wealthfront after the acquisition, Grove’s financial planning clients will be transitioning to Facet Wealth instead of becoming Wealthfront customers.
“Grove’s product team will be joining Wealthfront to help us bulk up our efforts to build” the firm’s Self-Driving Money platform, while Grove’s clients “will have the option to transition to Facet Wealth,” Wealthfront spokeswoman Kate Wauck told ThinkAdvisor Friday.
This is because Grove clients “signed up for a hybrid financial planning service and we respect this preference — it’s just not what we offer or plan to offer,” she said.
As part of the deal — the terms of which were not disclosed — Grove CEO and co-founder Chris Hutchins is joining the Wealthfront team.
Using the Self-Driving Money platform, Wealthfront clients will be able to deposit their paychecks into its system, according to the company. Technology “will handle the rest, ensuring that bills are paid, the right amount of money” is in their emergency funds and they’re “contributing to the most appropriate investment accounts to achieve” their specific goals and maintain their lifestyles, it said.
Wealthfront has “already grown our total client assets this year by nearly 100%,” Andy Rachleff, its CEO and co-founder, said in a statement.
More Views on the Deal
“Ultimately, this probably won’t be a significant competitor to advisors,” popular blogger and financial planner Michael Kitces predicted on Twitter Thursday, shortly after the announcement. He notes that Wealthfront/Grove financial planning (FP) software is for do-it-yourself (DIY) investors “who don’t hire advisors in the first place.”
But Kitces predicted that it “will amplify the robo-vs.-incumbent competition” with Charles Schwab and Vanguard Personal Advisor Services, and also help drive a “rapid escalation in the monthly subscription pricing battles in the next month or two (which we’re already seeing with rapid enterprise adoption at AdvicePay as well) as Wealthfront re-deploys Grove’s tech.”
The “long-term question” for Kitces, though, was “whether Wealthfront will monetize monthly subscription FP fees unto itself (as Grove set out to do originally)” and as XY Planning Network does, or if monthly subscription FP “will simply be the AUM-gathering loss leader (akin to Schwab’s model), he said.
Regardless, after anticipating in 2013 that monthly subscriptions would end up being the next big business model in financial advice, it’s “absolutely fascinating to see how slow it moved for the first 5 years, and how quickly it’s moving in 2019!” he said.
Although Kitces saw the “real news” being Wealthfront getting Grove’s tech rather than Facet Wealth getting Grove’s clients, Chip Roame, managing partner of Tiburon Strategic Advisors, told ThinkAdvisor: “I think the bigger news is that Facet Wealth acquired Grove’s best CFPs and clients, since Wealthfront does not have a hybrid financial planning model akin to what Grove sold their clients, and what Facet offers as well.”
Despite calling it a “nice win” for Wealthfront, Roame said the fact that the price it paid for Grove wasn’t disclosed made it “hard to decide the worthiness of the deal.” Noting that Grove had “some cool technology [for] automating client paychecks” and Wealthfront developed the similar Self-Driving Money, he said: “This looks like an acquisition maybe to facilitate” the hiring of Hutchins.
Facet Wealth CEO and co-founder Anders Jones declined to say Friday how much his company paid for Grove’s clients and members of Grove’s financial planning team of CFPs. “We’ll have 84 employees post-Grove [and] we’ll serve almost 1,500 households after this,” he told ThinkAdvisor.