Corporate Insight Study Finds Digital Advice Here To Stay In Latest Review Of Key Fintech Business Models

Low-Cost Online Managed Account Providers Winning New Assets, Investor Trust; Other Fintech Firms to Face Decision to Grow or Exit

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Corporate Insight

Oct 07, 2015, 09:00 ET

NEW YORK, Oct. 7, 2015 /PRNewswire/ -- Corporate Insight, a leading provider of competitive intelligence to the financial services industry, has released the latest study in its Next-Generation Finance Series, titled Next-Generation Investing 2015: Digital Advice Matures. The report, which provides a comprehensive review of more than 60 of the industry's leading investing- and personal finance-related startups broken down by business model, affirms that "robo advisors," or digital advice providers, have emerged as a disruptive force in the investment industry. Between April 2014 and July 2015, assets under discretionary control of the 11 leading online advisors the firm tracks grew 208 percent.

From April 2014 to July 2015, total assets from 11 leading digital advice providers increased from $11.5 billion to $21 billion, an 83 percent growth rate in a span of just 15 months. Most of this growth can be attributed to the managed account model, as the appeal of the algo-based advice approach seems to have plateaued.

"Our research shows that automated advice is here to stay, and it's rapidly gaining traction across the globe," said Analyst Sean McDermott, who leads fintech research for Corporate Insight. "Fintech firms offering online managed accounts are winning customers' trust. They have established a model that will bring low-cost managed money to the masses."

The study identifies the strengths and weaknesses of each firm and analyzes how different business models and services have evolved since Corporate Insight first began tracking the space in 2012. It also examines the proprietary digital advice platforms recently launched by incumbent players like Schwab, TradeKing and Vanguard, and the implications for the financial services industry as a whole. The intelligence in this report should be valuable to firms facing the decision to buy, build or white-label a new financial technology solution.

A Tale of Two Models

Since April 2014, Corporate Insight has periodically collected up-to-date figures from 11 leading digital advice providers – AssetBuilder, Betterment, Covestor, Financial Guard, FutureAdvisor, Jemstep, MarketRiders, Personal Capital, Rebalance IRA, SigFig and Wealthfront – for assets under discretionary management (i.e., held in low-cost online managed accounts) and assets for which clients receive paid investment advice (i.e., algorithm-based investment advice services). These statistics have provided insight into the health of two of the major fintech business models that have defined the digital advice space.

From April 2014 to July 2015, total assets increased from $11.5 billion to $21 billion, an 83 percent growth rate in a span of just 15 months. Most of this growth can be attributed to the managed account model, as the appeal of the algo-based advice approach seems to have plateaued.

As the accompanying chart illustrates, the paid investment advice growth rate steadily declined each time Corporate Insight collected data, dropping from a 35 percent increase between April and July 2014 to 16 percent between July and December. From there, advised assets actually declined six percent between December 2014 and July 2015.

The story for online managed account providers is much more positive. Managed account assets among 11 leading digital advice providers grew from $2.6 billion to $8 billion, an increase of 208 percent. Even more telling, these firms achieved their highest six-month growth rate in the most recent period measured – increasing assets by 57 percent from December 2014 to July 2015 – despite the fact that the first half of 2015 was largely flat for most major domestic indices. This suggests that most of the growth has been driven by new client assets, rather than market performance.

The Incumbents Respond

"The intersection of several market forces makes this an ideal time for major financial institutions to finally embrace fintech," said James McGovern, Vice President of Consulting Services at Corporate Insight. "Incumbent firms now have many potential partners or acquisition targets that could help them reach the next generation of investors at an early stage of their lives."

Indeed, since the first quarter of 2015, several firms have acquired a startup or partnered with one. A few have even launched their own "robo"-like offerings. Over the next 12 to 18 months, Corporate Insight expects to see more of this activity, as established firms seek opportunities to innovate and some startups look for an exit strategy.

About the Next-Generation Finance Series

Corporate Insight's Next-Generation Investing 2015: Digital Advice Matures study is the third in a series where the company has tracked and reviewed the automated advice market. The first study – Next Generation Investing: Online Startups and the Future of Financial Advice – was released in October 2013. The second report – Transcending the Human Touch: Onboarding and Product Strategy for Automated Investment Advice – was published in August 2014.

About Corporate Insight

Corporate Insight provides competitive intelligence, consulting and user experience research to the nation's leading financial institutions. For more than two decades, the firm has tracked technological developments in the financial services industry, identifying best practices in online banking and investing, online insurance, mobile finance, active trading platforms, social media and other emerging areas. The firm helps its clients to remain at the forefront of industry trends and improve their competitive position. Learn more at www.corporateinsight.com/about-us. Connect with us on Facebook, Twitter (CInsight) and LinkedIn.

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SOURCE Corporate Insight