Initially, it was the start-ups came on the scene and crashed Wall Street’s party,” says Corporate Insight project manager Sean McDermott. “But the tables have been turned.”
Once feared as a disruptive force, in recent years start-up robos’ “entire service model” has been “co-opt[ed] … by the industry behemoths, ” he says. McDermott points to examples such as Charles Schwab’s Schwab Intelligent Portfolios and Vanguard’s Personal Advisor Services.
Valuations for major digital providers, such as Wealthfront, Betterment or SigFig, are likely too large for other financial services firms to consider, McDermott says.
SigFig is “probably the one to watch,” McDermott says, because of its success partnering with distributors such as Wells Fargo, UBS and Citizens Bank. The software provider has also received funding from UBS, Eaton Vance, General Atlantic and other financial services firms.
But the partnership route is more difficult for providers like WealthFront that have positioned themselves as outsiders, McDermott adds.
More stand-alone firms are likely to pile on with similar banking products, Corporate Insight’s McDermott says, as they try to position themselves as “a one-stop shop for all your financial services needs.”
Many robo-advisors have also expanded their portfolio offerings, adding options such as smart beta or socially responsible investments, McDermott notes. Betterment and Wealthfront both added SRI options last year, while TIAA and Morgan Stanley also offer SRI investments in their robo services.
Such changes are part of an effort “diversify their product lineup to try to appeal to a broader swath of investors and a broader segment of the different demographics out there,” McDermott says.