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Despite surge in assets, robo-advisers struggling to remain independent

Robo-advisers are managing more money than ever, but withthe exception of a few companies that can remain fully independent, most willwork with incumbent wealth managers.

According to SNL Financial data, robo-advisersmanaged a total of $7.48 billion in assets under management in 2015. Thecompound annual growth rate was 124.44% for the period from 2012 through 2015.

 

Robo-advising technology has seen "exponentialgrowth" during the last 18 months, said Gauthier Vincent, who leadsDeloitte Consulting's wealth management team. But the upward growth curve isbeing driven more by incumbent, traditional players in the wealth managementspace rather than those independent financial technology companies offeringautomated advice, he said.

Vincent explained that the high cost of customer acquisitionand consumers' wariness toward lesser-known investment brands has forced manyrobo-advisers to turn away from business-to-consumer strategies. Instead, thesecompanies and their venture capital backers have realized the need to movetoward a business-to-business model whereby they partner with some of thelargest and most-trusted incumbents, he said. A slew of partnerships betweenrobo-advisers and large financial institutions have been announced in the pastsix months, Vincent added. For the robo-advisers, this arrangement offers amore reliable inflow of new clients and alleviates the challenge of marketingto consumers.

On the other hand, incumbent wealth advisers were slow torecognize the disruptive power of robo-advising technology, but and building outtheir own proprietary capabilities have both become viable options, Vincent said.

"If you have a strong investment brand, one of theleading investment brands out there, that's worth something," he said."That's part of the value that you create for the investor."

Looking ahead, Vincent expects many robo-advisers to sell orpartner with bigger companies. "In the next six months, there will be anumber of partnerships being announced because a number of them are beingnegotiated and structured at the moment," he said.

But a few robo-advisers could remain independent, Vincentadded. While their peers sell or enter into partnerships, companies likeBetterment LLC aim toretain their independence. The financial technology company, which recentlycrossed the $5billion AUM threshold, aspires to be one of the few standalone, publicly tradedrobo-advisers, according to Joe Ziemer, a spokesman for Betterment.

Ziemer said that Betterment expects more consolidation inthe space as incumbents buy, build or partner with robo-advice companies. Hepointed out that AUM growth in the space validates "an appetite for moreof a technology-driven model."

"The large incumbents are recognizing that there isthis movement that's happening and that they need to equip themselves. We willwithout a doubt continue to see a few independent players in the space,"Ziemer said. "That's certainly what we aspire to be."

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Click here for a one-page tear sheet with market and financial performance data of a financial institution.

Asset managers report information on assets under management and retail accounts in the ADV brochure which can be accessed under the Documents section of a company's briefing book page on the SNL website or in SNLOffice.