Robo-advice has been a hot topic in the wealth space for some time, and the digital transformation of the industry post-COVID-19 has accelerated growth. However, fondness for the service over others has remained low, resulting in robo-advice consolidation.
In 2019, our Financial Services Consumer Survey highlighted that 5% of US investors preferred using a robo-adviser to arrange investments, and as of 2022, our insight shows minimal upward movement to only 6%. Not to mention, our survey also concluded that mass-affluent investors in the US are just as interested in hypothetical Big Tech companies arranging their investments, who are yet to infiltrate the wealth space, as they are robo-advisers.
Uptake among investors has clearly stalled, which has forced players to change, especially as all are still aiming to reach profit and develop into long-term sustainable businesses. But the lack of increased preference for the service is causing players to partner with established players, open themselves up for acquisition, and rapidly introduce new services to keep afloat.
Betterment, currently the largest standalone robo-adviser, was valued at $1.3 billion in 2021, with over $30 billion in AUM and more than 700,000 customers. Betterment has been successful in these terms and has continuously grown its services over the past decade. Nevertheless, CEO Sarah Levy has now (August 2022) stated that “being called ‘the robo’ was not going to cut it if Betterment intended on being a sustainable business over the long term”, with the firm now moving into retirement plans to small and mid-sized businesses and focusing on advisors and wealth management firms.
Wealthfront, another leader in the same region, was acquired by UBS this year, while in the UK Nutmeg was acquired by JPMorgan in 2021. These leave question marks regarding the longevity of standalone robo-advisers—especially as these robo-advisers are leaders in their markets regarding AuM and customer numbers—away from traditional players bringing out their own robo-advice services such as Vanguard.
The direct-to-consumer model remains a challenge, even as a full-service financial partner to its clients. US investors are not being converted to robo-advice in a big way, as our latest survey data shows. Working with existing financial advisors, providing these traditional players with the products and services for their clients, is likely the only way Betterment can avoid the fate of other major robo-advice brands such as Personal Capital, Wealthfront, and Nutmeg and continue as an independent.