Robo-investing and robo-advising have been around for a long time, just under different names like quantitative analysis and algorithm-based trading/investing used by hedge funds and investment banks. Now, these tools are available for all investors and the result is a huge increase in their popularity. As one of the fastest growing areas of fintech, there are always many things happening in this corner of our industry. Here are some interesting news stories from the last couple of weeks:
Betterment raised $70 million putting its valuation at over $800 million, as reported by Bloomberg and has $10 billion in assets under management. Techcrunch reports Betterment’s launch of a new messaging feature to allow for easier Q&A between clients and their advisors. One of the most established firms in our field is growing and adding features for its nearly 300,000 users acquired since its inception in 2008.
Our Take: As one of the oldest robo-advising firms in the market, what’s good for Betterment is generally good for the industry. Their tremendous growth is still a drop in the bucket compared to the trillions of dollars under management in the US alone.
Banks have their own ‘robo-advising’ units offering services to customers while staying within the confines of the bank. This Bloomberg piece describes how your robo-adviser could have its own conflict of interest. The conflict here comes from recommending bank-preferred products from companies that pay banks to market them. A bank offering a robo-style service may be limiting your investment choices and exposing its own biases by only offering investments that pay for preferential treatment and placement.
Our Take: This is part of the battleground in the banks versus fintech argument in our industry. Banks have substantial funds thanks to deposits but they have old ways of thinking, like paying for placement, that independent fintech robo-advising firms don’t have. Fintech firms, due to their relative newness and lack of deposit money, are forced to use technology and their other assets in the most efficient way possible. Independence is key, whether inside or outside of a bank, to maximize the robo effect.
The UK and German bank Fidor Bank has its own digital banking marketplace. AltFi reports that Fidor’s first two partners to participate in the marketplace are an equity crowdfunding site and a robo-advisor. The robo-advisor, Nutmeg, helps UK citizens set up portfolios as well as set up and help to manage their pensions or ISA accounts (the UK equivalent of an IRA).
Our Take: It is promising to see a bank get into a digital marketplace and have a robo-advisor be the first to join it. Forward thinking banks will want to partner with fintech companies. The fact that this robo helps to set up ISA accounts and manage pensions for its clients and not just stock investments is a bonus. This type of full service robo-advisor is something we can expect to see more of soon.
Two leading marketplace lending firms, NSR Invest and Lending Robot, merged to create the largest robo-advising firm in the p2p lending industry.
Our Take: Both of these firms work with similar clientele and their strengths complement each other. NSR built its business as a conventional money manager with some of the most experienced minds in alternative lending while Lending Robot uses analytics and algorithms to help investors trade. Peter Renton of LendAcademy said it best, “As any new industry matures consolidation is inevitable. In this case, the two leaders are merging to create the largest registered investment advisor serving retail investors in marketplace lending.”
This Forbes piece makes the argument that the great advancement in the robo-investing world may come from robo-analysts. Robo-analysts can analyze real economic growth by analyzing 10-K and 10-Q SEC filings. A robo-analyst can roam over all the footnotes in those filings, performing forensic accounting-like duties. These duties take a robo-analyst mere hours to perform where it would take many people weeks to accomplish the same task. Fund managers of the future can use this analysis in making stock buying decisions.
Our Take: All robo-advising and robo-investing firms are looking to leverage technology so it’s not a big surprise to see some pursue all the number crunching that real financial analysis depends on. We do like this unique take on the effect of the robo in the marketplace.