Robo-advisors

Robo-advisors increase AUM but the Cash pile in the market hasn’t decreased

Robo-advisors increase AUM but the Cash pile in the market hasn’t decreased 800 533 Efi Pylarinou


Robo-advisors increase AUM but the Cash pile in the market hasn’t decreased

The top five robo-advisors have accumulated over $187 billion in AUM.

Two incumbents and three Fintechs are leading.

Growth in asset gathering continues but as per Autonomous Research, the jury is out as to whether gathering assets or gathering users are good measures of success of robo-advisors.

The growth has been double-digit, the kind that VCs like. Despite the fact that robo-advisors have clearly not lowered the customer acquisition cost (CAC) and ironically, in most cases have been deploying the same old-fashioned channels to acquire customers; VCs have been generous in funding them. Just for the top three Fintech robo-advisors, Betterment, Wealthfront, and Personal Capital VCs have invested ($275, $204, $265) nearly $745million.

The market share (as measured by AUM) amongst the top 5 US robos, is 20%-80% between Fintechs and incumbents.

One of the metrics that I had chosen to follow from the very beginning of the robo-advisory trend, was Unadvised Assetscash in physical wallets and in checking & savings accounts. For me, Unadvised Assets are a measure of the market opportunity for robo businesses. Deloitte reported in 2014 that in the US there were close to 13 trillion of such, unadvised assets.

Looking at the Q3 2018 U.S. Federal Reserve report and recent Money data, from grandmothers to hedge funds holding cash, in overnight money market funds, to checking accounts and currency; I realize that the AUM served from robo-advisors have had none or negligible impact on Unadvised assets.

In the US, Unadvised assets continue their solid growth. In 2016, I had reported $13.4trillion and now we are looking at $14.5trillion. An 8+% growth over the past 3yrs.

Unadvised assets in the Euro area, have grown from a total of 10.3 trillion EUR to 11.8 trillion EUR – a 14+% growth over the past 3yrs.

In the UK, from 1.56trillion GBP to 2.4 trillion GBP – a 5+% growth over the past 3yrs.

Cash continues to be up for grabs, for robo-advisors, for P2P lenders, for crowdfunding platforms, and tokenization platforms.

It was in 2015 that Schwab and Vanguard stepped into the robo-advisory market and leapfrogged the standalone top US robo advisors, Betterment, Wealthfront, and Personal Capital. SigFig was also a big contender at the time but has pivoted since into a predominately B2B business.

Now we are 4 years later and neither the cash pile has been reduced, nor the Customer acquisition cost has dropped. Robo advisors have cannibalized the onboarding, asset allocation part of the investment cycle.

[1] Advertising, mailing services, cheap initial offers….

[2] https://www.federalreserve.gov/releases/z1/20181206/z1.pdf

Are robo-advisors about Low-cost products or `Passive beats Active`?

Are robo-advisors about Low-cost products or `Passive beats Active`?

Are robo-advisors about Low-cost products or `Passive beats Active`? 800 449 Efi Pylarinou


Are robo-advisors about Low-cost products or `Passive beats Active`?

We live in a world that is using new words in an accelerated pace. I recently ran across the hashtag #phygital. Which reminded me of the hybrid nature of robo-advisory services that has emerged from the growth of robo-services.

The various robo services that have been launched over the past ten years, have transformed the investment management space into a predominately low-cost product space.

Last year, Victor Hagahni and James White – Victor is the Founder and CIO of Elm Partners, and James is Elm’s CEO – wrote an article Is Vanguard More Rolls Royce, or Hyundai? that highlighted an investment world particularity:

With most products and services – cars, doctors, food etc – better quality normally goes hand-in-hand with a higher price. Not so with investing.

They even quote Bill McNabb, former CEO of the Vanguard Group saying:

The whole cost argument from an investment perspective is counter-intuitive.

Listening to Bill McNabb`s short interview at the 2019 Academic and Practitioner Symposium on Mutual Funds and ETFs, he makes a very important point that is not well understood.

The transformation in the investment management space is clearly turned the space into A low-cost product space.

This often is confused with a transformation into A passive beats active space.

The growth of robo-advisory (apologies for the umbrella term) is Not about passive over active. Robo-advisory is about the wide spread use of low cost products. We live in a world that it is becoming more difficult to imagine high cost investment products.

One of the best examples of low cost, active and passive management, is Elm Partners.

12bps, tax harvesting, portfolio construction based on economic fundamentals and other liquid risk premia in addition to equity market Beta.

Listen to Victor Hagahni and James White discuss their approach which is for accredited investors only. Their offering includes less than half a dozen investment programs and the possibility of SMAs.

Elm Partners does not aim to do everything for everybody. Low cost and transparency is paramount for their business. You can follow their quarterly reporting on Seeking Alpha, here. You can follow their thoughtful research here. You can savor Victor`s Tedx Talk Where are all the Billionaires? & Why should We Care?: where he uses the puzzle of the missing billionaires to help us explore how and why most investors fail to capture the returns offered by the market. This actually leads into the main reasoning for Elm Partners investment strategy, the so-called “Active Index Investing.”

Listen to Victor Hagahni and James White discuss with me their approach which is for accredited investors only. Their offering includes less than half a dozen investment programs and the possibility of SMAs. Elm Partners does not aim to do everything for everybody. Low cost and transparency are paramount for their business.

 

[1] Former Chairman and CEO of Vanguard, Bill McNabb Discusses the Future of the Investment Industry from the 2019 Academic and Practitioner Symposium on Mutual Funds and ETFs. Presented by UVA Darden and the Investment Company Institute.

https://www.youtube.com/watch?v=Z8UQvkKbFZo

Robo-advisors: What are the fact and figures telling us?

Robo-advisors: What are the fact and figures telling us?

Robo-advisors: What are the fact and figures telling us? 1300 813 Efi Pylarinou

Robo-advisors: What are the fact and figures telling us?

I am listening to my followers and readers. I see that Linkedin is not the first choice of quality content producers in the Fintech/Blockchain ecosystem. Other platforms like Medium are stealing market share with an accelerating rate. However, Linkedin is a better platform in spreading the word, the message, the vision and in getting others to interact.

My Daily Fintech post from last week Barron’s exclusive Robo-advisor ranking and 3 unanswered questions resonated and the digital KPIs alerted me to that. From double the views on Daily Fintech to 15,000 views on Linkedin but more importantly, several great insights shared in the commentary.

Who said What?

It is grape harvest season in the south of Europe. I’ve harvested the conversations and distilled them (not word for word).

Seth Godin “It’s far more dangerous to fly too low than too high” – “The Icarus Deception” book

Efi Pylarinou – “Doing Nothing in this new era, is Unsafe” – from my  Dec 2015 year end post Digital wealth management and the Icarus deception

Efi Pyalrinou – “We seem to be chasing existing customers instead of growing the customer base”

Richard Turrin – “The incumbents were initially “Robbing Peter to pay Paul”. This maybe continuing.”

Paolo Sironi -“Cheaper costs doesn’t mean, higher value for underserved clients that need help with understanding investing and investment products”.

Vinay Jayaram – “The robo-advisory adoption over the past few years, is mostly evidence of a Lemming effect at play and at scale.”

Lex Sokolin and April Rudin – “The devil is in the details. Qualitative comparison of features remains tricky.”

The facts and figures are not disputed but the true impact from this robo-advisory adoption is not at all clear.

Lemmings are small rodents that have been observed to follow each other as they charge to their deaths- into raging rivers or even off cliffs. They soon become victims of a psychological affliction known as “the lemming effect.” 

By Frits Ahlefeldt

The lemming effect has been frequently highlighted in the investment behavior of managers and is a behavioral reality that we like to ignore. The robo-advisory segment will have to demonstrate that it is not plagued by the Lemming effect. Lest gove it more time.

 

Originally published: https://dailyfintech.com/2018/08/07/robo-advisors-what-are-the-fact-and-figures-telling-us/

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