Robo trends — Short Silos, Long real-time integrated workflows & personalization

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Backend Benchmarking quarterly Robo report is a classic for me and I watch for it religiously (this is the 18th edition). With so much consolidation in this Fintech subsector during 2020, with no IPOs or SPACs, one would think that it is a relatively boring subsector and consider the Robo report a business-as-usual update of numbers and rankings.

The reality is that the `Robo market` has gone beyond its first stage of offering a few model portfolios, automating investment processes and reducing costs. Several companies now offer banking features and others have added advice planning apps.

Examples of Banking features from standalone Robos:

  • Betterment Everyday
  • Wealthfront Cash
  • Wealthsimple Cash
  • Ellevest’s Money Membership

Bofa is an example of integrating their personal financial management offering with their investment offering.

Examples of advice planning features:

  • Bank of America launch of the Life Plan
  • Schwab launch of the Schwab Plan
  • Fidelity launch of the Fidelity Spire

From the standalone Robos, Wealthfront has always had a freemium financial planning offering and so does Personal Capital.

From last November, I have been highlighting the behind-the-scenes integrations that are underway in the US. These are reshaping the `Robo industry` and as always benefiting end-users.

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The heading of this article is inspired by a comment in the above visual from William Trout.

Consistent with the ESG narrative and with the stunning inflows to ESG funds, the Robo report confirms that SRI funds of Robos, experienced strong inflows Q4 2020 and were the funds that outperformed. Seven out of eight SRI funds outperformed their standard counterparts despite higher fund fees (comparison over a 2yr period)

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Source: Q4 2020 Robo report

The more forward-looking trend that needs highlighting is the potential of Direct Indexing. In late 2020, there were major Direct indexing technology acquisitions whose impact we will be seeing in the coming years.

  • BlackRock acquired Aperio
  • Morgan Stanley acquired Parametric (a business owned by Eaton Vance)
  • JPMorgan acquired 55ip
  • Goldman Sachs acquired Folio
  • Charles Schwab acquired Motif’s technology stack

Already Personal Capital offers customization of portfolios but only to clients with over $1million assets. With the widespread availability of fractional shares, direct indexing technologies have the potential to allow for scalable low-cost personalization of portfolios. Even more importantly, direct indexing can enable custom-tailored SRI investing.

Direct Indexing means actually owning the stocks in an index. This allows for tax harvesting and also for further customization of the index constituents based on chosen criteria (e.g. specific ESG criteria). Eventually even leading to DIY indices.

This is another behind the scenes trend that is not appreciated yet enough.

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№1 Finance Global Woman Influencer by Refinitiv 2020 & 2019. Fintech & Blockchain Advisor: 30yrs FINANCE; #fintech #blockchain

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