Does BlackRock’s Sale of FutureAdvisor to Ritholtz Deal Death Blow to Robos?

Ritholtz Wealth Management is acquiring BlackRock’s direct-to-consumer FutureAdvisor robo business, the advisory firm confirmed Wednesday — a move that signals to some industry experts that the era of standalone robo-advisors is all but over.

“I think it is the final nail in the robo-advisory coffin,” wealth management industry consultant Timothy Welsh, Nexus Strategy founder, president and CEO, told ThinkAdvisor via email Wednesday. “If a firm of the size, strength, brand and reach of Blackrock couldn’t make it work, then no one can.”

“It also signals that the big asset managers’ digital efforts are over, as the list of robo failures just keeps getting longer and longer — Principal/Robust Wealth, UBS/Wealthfront, Northwestern Mutual/Learnvest, and now BlackRock/FutureAdvisor,” he added.

“In the meantime, it is a big win for Ritholtz, as they have significant digital capabilities and can harvest that large client base to upsell them to full wealth management services — another brilliant move by Josh Brown and crew,” Welsh said.

FutureAdvisor reportedly has about $1.7 billion in assets and serves about 30,000 clients; terms of the deal were not disclosed.

Other Views

Not everyone shares Welsh’s critical view on the future of robo advisors.

“I do think [robo advisors] have a place in the marketplace, and they serve a purpose for a portion of the investing public. I just think that not everybody executed [well] on the strategy,” said Joel Bruckenstein, president of consulting firm Technology Tools for Today, in a phone interview Wednesday. 

“It’s a great move by Ritholtz. They’re picking up potentially a nice chunk of consumer business, which quite frankly I think they will be able to service much better than FutureAdvisor did,” he explained. 

 “I don’t think that it was necessarily a perfect fit for BlackRock, and it was never a big enough money maker or portion of their business that they should really be devoting time to it, so that makes sense,” Bruckenstein said.

Many companies, including Schwab, SoFi and Vanguard, “have what I would consider to be successful offerings. I just don’t know that it was ever BlackRock’s core business,” he explained, noting that BlackRock doesn’t have large direct-to-consumer offerings like Schwab, Fidelity and Vanguard.

Robo platforms have evolved, with many now incorporating some access to financial professionals, “and those are doing very well,” serving a significant population, Bruckenstein added.

U.S. robo advisor assets under management are expected to reach nearly $1.2 million this year and surpass $2 trillion by 2027, according to Statista.

What’s Next for Ritholtz

For its part, Ritholtz ”expects that FutureAdvisor clients will seamlessly transition to Ritholtz, where they’ll receive access to dedicated goals-based financial planning and cutting-edge technology,” the firm said in an emailed statement. “Ritholtz advisors and support staff are looking forward to helping them achieve success in all aspects of their financial lives.”

It isn’t yet clear what connection, if any, the acquired FutureAdvisor business will have to Ritholtz’s Liftoff automated investment service, aimed at young investors and operated on the Betterment for Advisors platform.

According to BlackRock, the transfer of its FutureAdvisor direct-to-consumer business to Ritholtz will start later this year. “We are proud of having served FutureAdvisor clients over the last eight years and are confident that Ritholtz, a national, multi-billion-dollar wealth management firm, has the ability to meet the demands of clients seeking digital solutions for their investing needs,” a BlackRock spokesperson said in an emailed statement.

“BlackRock will continue to serve wealth management firms with our Aladdin Wealth technology offerings,” the spokesperson added. News about the firm’s deal with Ritholtz was first reported Tuesday by Business Insider and Investment News.

More Issues

FutureAdvisor, which BlackRock acquired in 2015, pivoted to a B2B robo-advice provider some years ago, according to David Goldstone, investment research manager at Condor Capital Wealth Management, which publishes Robo Report and Robo Ranking.

“Notably, U.S. Bank’s automated investor was launched through a partnership with FutureAdvisor in 2016,” he said via email Tuesday.

“FutureAdvisor abandoning direct-to-retail is another sign that stand-alone robo-advice products have proved to be a difficult business model. Servicing small accounts with rock-bottom fees is difficult to make profitable, even when most of the servicing, advice and trading are automated,” Goldstone said.

“I think FutureAdvisor has suffered from the same problem that many robo-advisors have. I believe costs to acquire customers have been persistently high across the industry, and with razor-thin profit margins, it has been difficult for robos to attract enough clients and assets to achieve attractive profits,” he explained.

“The direct-to-retail product at FutureAdvisor has long languished after the acquisition by Blackrock, and there have been few, if any, product improvements in the past few years,” Goldstone added.

‘Top of a Bubble’

By the time BlackRock acquired FutureAdvisor in 2015, the robo advisor model “was already dying with growth rates slowing and assets flatlining,” according to Craig Iskowitz, CEO of the consultancy Ezra Group. “We all shook our collective heads when the largest asset manager in the world shelled out between $150 [million]-$200 million for what was essentially a self-directed onboarding tool with barely $3 million in revenue.”

This “was the top of a bubble that showed the robo-advisor trend was over,” Iskowitz explained in remarks he shared via email, some of which were also posted on LinkedIn. “All the major wealth platform vendors saw the trend and either bought or built their own digital onboarding software and it became a commodity.”

BlackRock’s plans to expand into a B2B digital platform “also fell flat, but they’re keeping that business alive for now. Their plans to use the B2C business to as a distribution channel for their iShares ETFs clearly wasn’t profitably either,” he said.

The firm’s deal with Ritholtz “is a clear sign that Barry [Ritholtz ] and [CEO] Josh [Brown] believe that they have a differentiated product in their in-house robo-advisor product, Liftoff.  It seems they will be migrating the FA clients and assets over to their Liftoff platform,” Iskowitz explained. “Josh and Barry have been very innovative as they have launched a number of technology-based initiatives, including Liftoff, as well as their crypto index.”

Though growth at most robo-advisors “has flatlined, perhaps Rotholtz believes they have some secret sauce that can attract assets to their digital offering rather than Betterment, Wealthfront or Vanguard,” the consultant added.

(Photo: Jeenah Moon/Bloomberg)