Close
ThinkAdvisor

Technology > Investment Platforms

RobustWealth’s Closure ‘a Shame,’ but Not a Surprise, Techies Say

X
Your article was successfully shared with the contacts you provided.

What You Need to Know

  • “When an insurance company purchases a wealthtech firm, there is often a culture clash,” says T3 head Joel Bruckenstein.
  • Principal acquired the digital wealth management platform only three years ago, in 2018.
  • The shutdown is a "missed opportunity for Principal," Bruckenstein says.

Fintech experts reacted with little surprise to news that Principal Financial is planning to shut down RobustWealth in September despite the fact that Principal only acquired the digital wealth management platform three years ago and RobustWealth showed signs of promise.

“Principal has acquired full ownership of RobustWealth to better integrate its technology, capabilities, and talent into the organization to drive value across the organization through innovation and the evolution of our digital advice and automated investment technologies,” a Principal spokeswoman said on Thursday.

“As part of the transition, we’re no longer selling or supporting the advisor technology platform and are working closely with our clients impacted as we manage the wind-down,” she said.

Former RobustWealth user Vincent Barbera, a certified financial planner who is co-founder and a managing partner of Newbridge Wealth Management in Berwyn, Pennsylvania, told ThinkAdvisor he received an email from Principal about its decision to shut down RobustWealth.

He wasn’t surprised by the news either, he said on Thursday. “Once they were purchased by Principal, I knew it was only a matter of time before they were shut down. If there was a surprise, it was that Robust lasted as long as they did” after the acquisition.

“Nothing surprises me anymore — when it comes to the marriage of wealthtech and insurance firms, even less so,” Joel Bruckenstein, head of Technology Tools for Today (T3), told ThinkAdvisor on Thursday.

“I think it is a shame. I thought RobustWealth had a great deal of potential [that] was never realized,” Bruckenstein said. But he added: “When an insurance company purchases a wealthtech firm, there is often a culture clash.”

The former owners of RobustWealth probably “thought they would get a cash infusion and continue to build the business,” he speculated. “It is possible that the acquirer had different ideas. Perhaps those ideas did not pan out.”

However, the planned shutdown is a “shame for the advisors who were early adopters of RobustWealth, and it is a missed opportunity for Principal,” he said.

“I wish it had turned out differently for all involved.”

In a tweet earlier this week, Craig Iskowitz, CEO and founder of Ezra Group, called this “Another example of an insurance company spending money trying to be innovative but being unable to leverage good tech & a good team — selling to advisors is not as easy as it looks.”

7 Reasons

In a long Twitter thread, Michael Kitces, head of planning strategy at Buckingham Wealth Partners and co-founder of XY Planning Network and AdvicePay, pointed out that the RobustWealth acquisition by Principal in 2018 was “one of multiple asset managers acquisitions of ‘robo-advisor-for-advisors’ platforms, along w/ WisdomTree buying AdvisorEngine, after Invesco acquiring JemStep, after Blackrock [acquiring] FutureAdvisor.

Kitces went on to cite seven reasons why RobustWealth failed to live up to its potential:

1. RobustWealth’s strategy hit reality.

“The strategy was pretty straightforward — if advisors automate trading & rebalancing of their models through ‘robo’ tools, then asset managers can populate the marketplace of models with models that include their own mutual funds/ETFs to boost their distribution,” Kitces tweeted.

However, he pointed out: “The reality is that advisors tend to look to their RIA custodians (e.g., Schwab, Fidelity, TDA) first and foremost for trading tools to implement. Which meant they didn’t want/need third-party tools that the asset managers acquired and offered.

 2. Bigger RIAs tend to use their own in-house models.

“Third-party trading/rebalancing tools are out there,” but they are “commonly tied to performance reporting tools like Orion, Black Diamond, and Tamarac [and] tend to be used by mid-to-large-sized RIAs who are multi-custodial (thus can’t use one custodian’s on-platform tools),” Kitces said.

These RIAs, however, “tend to use their own in-house models because they’re large enough to have their own investment teams to design them,” he noted. “As a result, robo-for-advisors tools have struggled mightily to gain adoption in small or large firms.

3. They built it, but RIAs didn’t come.

“When the robo-for-advisors tools don’t get adoption, their use as a model marketplace to facilitate distribution of the asset manager’s funds doesn’t work,” according to Kitces. “In essence, asset managers treated robo tools as ‘if you build it, they will come.’ But RIA’s didn’t.

4. Advisors tend to stick with the model marketplaces they already use.

“In practice the model marketplaces reportedly getting the most traction — via TDA’s iRebal, Envestnet, & Orion’s Communities — were the marketplaces that showed up where advisors already were,” Kitces said. “Not the ones trying to win advisors away from their current platforms.

5. “Tech matters, but switching costs are brutal.”

“Advisors are MUCH more likely to use expanded offerings where they already are” and that is “why the incumbents who added marketplaces won,” according to Kitces.

6. This has happened before.

“In the broader context, RobustWealth shutting down fits in a series of recent similar events, including WisdomTree spinning off AdvisorEngine, and Oranj shutting down entirely,” Kitces said. “All built around model marketplace models where advisors just didn’t show up to buy models from them,” he noted. 

7.  There is no magic bullet.

This is a “powerful reminder that, in the end, such tech tools “aren’t a magic bullet solution for asset managers & other manufacturers to open the door to the RIA channel,” Kitces said.

However, “I don’t think the shutdown of so many model marketplaces contravenes the broader advisor trend of increasing outsourcing of investment management,” according to Kitces. “AdvisorTech IS still increasingly a distribution channel for products.”