Robos Aren’t Just a Threat — They Can Be Partners

Robo-advisors are portrayed as the big bad threat to traditional financial advisors, but it doesn’t have to be like that, and many established firms are realizing as much while some startups in turn gravitate toward them, according to Yahoo Finance.

Everyone Can Win, Sometimes

The synergy between so-called fintech “disruptors” and larger financial institutions was something U.S. Secretary of Commerce Penny Pritzker aimed to achieve when she brought together several firms from each camp for a face-to-face last week, the website writes. Small firms bring innovation, but large firms bring the ability to deal with compliance on a larger scale, as well as manpower, the website writes.

The choice of venue was indicative of the goal: the New York City headquarters of LearnVest, a six-year-old financial planning startup that was bought by Northwestern Mutual last year, in a deal valued at more than $250 million, according to the website.

Both companies have benefited from the business, LearnVest’s CEO Alexa von Tobel and Northwestern’s CEO John Schlifske tell Yahoo Finance. LearnVest still runs its own independent financial planning operation while Northwestern Mutual rolled out LearnVest’s platform for its 8,000 advisors, according to the website.

Not All Relationships Work Out

Succesfull partnerships between financial giants and fledgling startups include BlackRock’s acquisition of FutureAdvisor last summer and the earlier partnership between Pershing Advisor Solutions and online broker Motif Investing, the website writes.

But not all of such partnerships work out. Fidelity and Betterment, the robo-advisor pioneer, parted ways after just a year, although Betterment’s CEO Jon Stein, who was also at last week’s get-together, said it was a learning experience, according to Yahoo Finance.

Fidelity, meanwhile, decided to build its own platform, much like Vanguard and Charles Schwab did before them. And why not, considering that Vanguard’s robo platform has grown to $21 billion in assets under management in about half a year, or roughly the same as 11 of the largest robo-advisors had combined by July, the website writes.

In addition, many fintech firms will simply fail: since 2013, for example, algorithm-based advice service firms Nestful, Plumvo and Saveplan have all folded. Meanwhile, success stories such as LearnVest don’t rely on robots alone but build hybrid platforms that have some human advisor involvement, the website writes.

Nonetheless, fintech firms will continue to pop up, and to Northwestern’s Schlifske, the choice is simple: “ You can’t stop [fintech innovation] so you might as well lead it,” he tells Yahoo Finance.

Source: Yahoo Finance