Growth in Online-Only B-to-C Advisories Stagnates

By Cyril Tuohy

After a decade of rapid growth, the number of online-only advice firms in the business-to-consumer segment plateaued at 29 in 2017, an increase of just one firm since 2016, the latest compilation of data found.

The business-to-consumer, or B-to-C, market segment is made up of 24 pure-play roboadvisors and five online-only advisories owned by discount brokers and retail mutual funds.

Roboadvisors, which dispense advice and invest based on computer algorithms and bypass traditional flesh-and-blood advisors, appeal to investors in search of lower-priced models.

“Discounters and fund companies will continue to dominate the market,” said Chip Roame, managing partner of Tiburon Strategic Advisors.

In 2012, there were only 10 online-only advice firms in the B-to-C market, a market with less than $7.9 billion in AUM, Tiburon said.

The 29 B-to-C focused online advisories control $93.8 billion in AUM and by 2022 there will be 21 B-to-C focused online advice firms with $1.4 trillion in AUM, Roame projects.

Online-only advisors owned by discounters and mutual fund companies command the lion’s share of the assets in the online-only space, the research shows.

Discounters and mutual funds managed $77 billion in online-only assets in 2017, an increase from $66.2 billion in 2016, the research found.

Pure-play roboadvisors in the B-to-C market, which typically garner the loudest headlines, collected AUM of $16.8 billion at the end of last year. That represents a fraction of 1 percent of all U.S. retail investment assets.

Discounters and Funds vs. Pure-Plays

Top online-only advice leaders last year were Vanguard Group’s Personal Advisor Services with $50 billion in AUM. Trailing were Charles Schwab’s Intelligent Portfolios with $16 billion in AUM and TD Ameritrade’s Amerivest with $11 billion in AUM.

The top pure-play online advisor Betterment Holdings was next with $6.1 billion in AUM, followed by Wealthfront with $4.7 billion and Personal Capital with $4.2 billion.

The concentration of future venture capital investments in fewer online-only pure play advisors is likely to thin the ranks of roboadvisors.

Several high-profile acquisitions of roboadvisors have taken place in the past two years. That is a sign of the coming consolidation as the number of pure-play roboadvisors in the B-to-C market declined but AUM rose.

Last year, roboadvisor LearnVest was sold to Northwestern Mutual for $250 million and Future Advisor was bought by fund manager BlackRock for $152 million.

In 2015, Covestor was bought last spring by Interactive Brokers Group for $50 million. Other online-only advisors have entered into partnerships with large asset managers.

SigFig announced a partnership last year with UBS to help UBS’s army of 7,000 financial advisors, for example.

Flesh-and-blood advisors aren’t expected to disappear as roboadvisors gather more assets, but traditional advisors can expect more questions from clients about revenue models.

Online-only models, however, are playing a role in eroding the future growth prospects of advisors of the flesh-and-blood kind, Roame said.

InsuranceNewsNet Senior Writer Cyril Tuohy has covered the financial services industry for more than 15 years. Cyril may be reached at [email protected].

Cyril Tuohy is a writer based in Pennsylvania. He has covered the financial services industry for more than 15 years. He can be reached at [email protected].