Robo-advisory platforms use algorithms to provide automated investment advice and management services (asset allocation, portfolio rebalancing, and other related services) based on clients’ investment goals and risk tolerance. Most use either low-cost exchange-traded funds (ETFs) or index funds as investment vehicles. Robo-advisory platforms have an advantage over human advisors as they are easily accessible online, carry out portfolio management tasks for large numbers of clients simultaneously, and involve much lower fees and initial minimum account balances.
The robo-advisory industry is dominated by its largest players. Most of the leading incumbents and disruptors currently provide hybrid digital wealth management services to individual investors in order to attract the mass affluent group. The majority of top players are in the growth stage.
Wealthsimple stands as the highest funded disruptor in the robo advisory space, with a total of USD 900.4 million as of August 2021. The company is a hybrid operator in the B2C space, combining digital robo advisory with human expertise, and holds a significant lead over the second largest player in the space, Scalable Capital which had USD 314.2 million in funding as of the same date.
Other notable players include Betterment, Wealthfront, and SigFig, which have been around for more than a decade and are well known in the robo advisory space. These companies compete in the mass market by offering a wide variety of features. Both Betterment and SigFig have also partnered with businesses, such as advisory firms and banks, to expand their respective client bases.
Smaller players often differentiate themselves by catering to specific clientele (such as female investors, non-resident investors, Halal investing, and employer-sponsored retirement accounts), responding to the fact that customers tend to feel more secure with personalized services rather than the generic offerings.
Based in Toronto, Wealthsimple is a hybrid investment management platform that allows individuals to invest in diversified portfolios, according to their risk profiles. The company launched the robo-advisory platform in Canada in 2014, and expanded into the UK and US in 2017. Wealthsimple sold its US-based clients to Betterment in March 2021. In September 2020, Wealthsimple also sold its B2B robo advisory platform—called Wealthsimple For Advisors—to Purpose Advisor Solutions.
The company’s robo-advisory platform features access to financial advisors, automatic portfolio rebalancing, tax loss harvesting, and dividend reinvestment. Over the years, the company has also added other services to help individuals achieve their financial goals such as high-yield saving accounts, commission-free trading, crypto trading, and automatic investing of spare change. As of 2021, the company has more than USD 3 billion in assets under management (AUM).
The basic subscription requires zero minimum account balance and charges a 0.5% annual fee—the same rate as Toronto-based competitor Justwealth. To access financial advisors and more advanced features such as financial planning sessions, the platform requires a higher minimum account balance of USD 100,000 with a reduced annual fee of 0.4%.
In May 2021, the company raised CAD 750 million (USD 610 million) in funding led by Meritech and Greylock, at a post-money valuation of CAD 5 billion (USD 4 billion). The funding will be directed towards developing new products and expanding the company's workforce.
B2C: Hybrid (Digital and Human):
B2B2C: Hybrid (Digital and Human):
B2C: Digital Pure Players:
The incumbents include financial institutions such as asset management companies, brokerages, advisory firms, and banks. Most provide digital services primarily to accommodate demand for low-cost advisory services from existing clients and sophisticated investors. The incumbents generally charge slightly higher fees than the disruptors (e.g. 0.30% vs. 0.25%) and require higher minimum balances for standard services.
The incumbents have mainly participated in the industry through in-house developments, acquisitions, and partnerships, with the major players commonly developing their own proprietary platforms. With advances in technology, companies have scaled rapidly to dominant positions. Vanguard Personal Advisor Services is the largest robo-advisory platform, managing assets worth USD 231 billion as of May 2021. Schwab Intelligent Portfolios follows, although distantly, with USD 63.6 billion.
Some players made their entrance into the industry marked via acquisitions and partnerships designed to capture market share faster. One of the earliest through this avenue was BlackRock, via the acquisition of robo-advisory startup FutureAdvisor in 2015. More notable recent examples include Goldman Sachs when it acquired United Capital in May 2019 and Empower Retirement when it acquired Personal Capital in June 2020.
Meanwhile, both Wells Fargo and UBS Wealth Management Americas have developed their digital platforms through partnership agreements with SigFig.
Launched in 2015, Vanguard Personal Advisor Services is the largest robo-advisory platform in terms of assets under management (AUM), USD 148 billion according to the company’s Q1 2020 filing. The platform provides hybrid advisory services by combining its proprietary investment modelling technology (Vanguard Capital Markets Model) with human advisors. Human advisors help clients create financial plans and monitor and rebalance portfolios when necessary. Support is also available through phone and videoconferencing. The platform charges 0.30%, similar to most incumbents, but has a higher minimum account balance requirement of USD 50,000. As an account balance increases, fees drop to as low as 0.05%.