Robo Advisor Performance For Q1 2018 Now Available for Advisors
BackEnd Benchmarking produces The Robo Report™, which publishes a quarterly report on the digital advice industry. The report includes performance data on real accounts opened by BackEnd Benchmarking. Providing performance data allows for comparison across different digital advice platforms, helping investors make informed decisions when selecting a robo advice product.
The first quarter of 2018 was another active quarter in the digital advice industry. Clients and AUM continue to grow across digital advice platforms, although some have raised concerns about slowing growth rates, particularly at the independent robo advisors. Increased competition has likely contributed to slower growth rates and persistent high costs of customer acquisition. Over the past year there has been a continual increase of established financial firms rolling out digital advice products: Morgan Stanley, Wells Fargo and UBS have all recently launched their platforms, while JP Morgan Chase is in the process of rolling out their digital advice product. Goldman Sachs is rumored to be working on an offering of their own to accompany other financial products available under their consumer-facing Marcus brand. Customer acquisition will increase in difficulty, as many of those who find digital advice attractive have already selected a provider, while those who have not now face a wide array of product offerings, and likely have an option at one of the institutions where they already do business.
Large existing customer bases give the incumbent advice providers an additional advantage over independent robos. This has played out in the race for AUM, as Vanguard and Schwab have brought on $101 billion and $27 billion in assets for their robo products as of the end of 2017, respectively. This compares to Betterment and Wealthfront finishing 2017 with AUM of over $13 billion and $10 billion, respectively. Although Schwab and Vanguard have been more successful bringing assets into their digital advice programs, the numbers may be misleading when considering the number of assets that are new to the firm. Last year, a Vanguard spokesman was quoted as saying 90% of assets in their Personal Advisor Services came from clients with existing Vanguard accounts. In an interview conducted by The Robo Report™ with Schwab, a representative shared that 30% of the assets in their digital advice offerings were new to Schwab, with the remainder migrating from other business segments. Looking at assets new to the firm highlights two important insights. The first is that Betterment and Wealthfront are proving equally, if not more, effective at attracting new assets as Schwab and Vanguard. The second is large existing customer bases are helping incumbents quickly build up their digital advice offerings. New-to-investing and previously self-directed investors are providing the largest segment of rob advice clients. Robo advice products now being offered where many self-directed clients already do business is an additional hurdle for independent robos.