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Industry Spotlight > Mergers and Acquisitions

Why Is UBS Buying a Robo for $1.4B?

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What You Need to Know

  • At least a couple of fintech experts were surprised by UBS's plan to buy Wealthfront for $1.4 billion.
  • It's ironic that Wealthfront, which once set out to disrupt traditional wealth management, has been bought by a 160-year-old bank, Tim Welsh says.
  • The experts are split on which is more valuable: Wealthfront's clients or its tech.

Fintech experts interviewed by ThinkAdvisor on Thursday indicated they were surprised by UBS’s announcement that it plans to acquire Wealthfront, especially the $1.4 billion price tag.

Saying he was “very surprised,” Tim Welsh, president of Nexus Strategy, told ThinkAdvisor by email: “UBS has the wherewithal and resources to go down the Merrill Edge path and build it themselves, just like Schwab, Vanguard, Fidelity and everyone else did.”

Also significant is that “Wealthfront is so anti-establishment that there will be client defection for those who wanted an independent solution and not get swept up into a 160-year-old institution,” he predicted.

Isn’t It Ironic?

Welsh saw it as ironic that Wealthfront had set out to “disrupt advisors and traditional wealth management via technology” but has now “sold the business to a 160-year-old bank and wirehouse — just the people they claimed were evil and had targeted to disrupt.”

He continued: “Seems like UBS is chasing Morgan Stanley and Merrill Lynch based on their success with digital plays via E-Trade and Merrill Edge to vastly overpay so much for Wealthfront.”

After all, he said: “There really isn’t much value in the client base with an average account size of ~$57k, meaning about $140 per year in revenues (25 bps) — nobody wants that. So the deal has to be all about the technology, which we have seen is easily replicable as Schwab, Fidelity and Vanguard have dominated the robo space soon after Wealthfront entered.”

Therefore, he added: “The deal at that valuation really defies reality. However, there must be synergies that UBS sees and the ability to get them to market immediately in order to validate the premium they are paying.”

Buying the Clients, Not the Tech?

Calling it an “interesting” deal, Joel Bruckenstein, Technology Tools for Today (T3) head, told ThinkAdvisor in a phone interview: “A lot of folks in Silicon Valley who are kind of younger did really embrace Wealthfront” based on what he had heard.

But, offering a much different take on the transaction than Welsh, Bruckenstein said Wealthfront does “have some people on their platform that have quite a bit of money…. If I’m UBS, I guess the way I would look at it is, I’m buying the relationship first and the technology second.” But if UBS “bought it just for the technology, they probably overpaid,” according to Bruckenstein.

Despite the “significant assets” that Wealthfront has on its platform, “those assets are not earning Wealthfront a fortune — that’s why they sold, in my opinion,” Bruckenstein said.

“I don’t think they’re significantly better than some of their good competitors,” but Wealthfront is “as good as the top tier of wealth management kind of robo-platforms,” he said.

But he continued: “There are a lot of value-added services that you can sell to some of their client base that could make it much more valuable” for UBS.

Other Takes

“Wealthfront in many ways helped start the robo-advising trend when it was founded over 13 years ago,” Tommy Marshall, executive director of Georgia Fintech Academy, pointed out.

“Few large wealth management firms could see the opportunity then but all have embraced the importance of this type of a platform to their models,” Marshall said. “If there was any remaining doubt, it was removed as firms watched the success of Robinhood during the pandemic. Now, every large wealth manager has this type of capability either through direct acquisition or partnership.”

Marshall predicted “UBS will certainly benefit from Wealthfront’s savvy technology team,” which he said “helped write the book” on development, security and operations for the wealth management industry.

“Wow,” Gavin Spitzner, president of Wealth Consulting Partners, tweeted Thursday. “@UBS acquiring @Wealthfront for $1.4 billion cash. I’m not easily shocked but this is shocking.”

Spitzner did not immediately respond to a request for comment to clarify what he found so shocking about the transaction.

Pictured: Joel Bruckenstein