If an investment portfolio gets optimized through an online investment advisor, do brick and mortar brokers make a sound?
As noted in today’s Wall Street Journal, many of the kinds of services that once were accessible only by high net worth investors patronizing financial advisors and planners in person are now available to the rest of us. This includes everything from using computer algorithms to make investment decisions to automatic portfolio rebalancing and asset allocation.
And of the seven companies highlighted in the column for helping make this possible, every single one is a Finovate alum.
- Wealthfront (FinovateStartup 2009)
- Personal Capital (FinovateFall 2012)
- Jemstep (FinovateSpring 2013)
- FutureAdvisor (FinovateSpring 2012)
- Betterment (FinovateFall 2011)
- SigFig (FinovateFall 2011)
- LearnVest (FinovateFall 2012)
In fact, two of the seven – FutureAdvisor and LearnVest – will be demoing their latest technology on the Finovate stage in New York next week for FinovateFall 2013.
The reasons for the growth in online investment advisory are as varied as the companies themselves. Some cite a new generation of investors far more comfortable with both handling their own finances and trusting the Internet to help. Others suggest that with Wall Street falling into disfavor in the wake of the financial crisis, more investors are willing to seek out non-traditional – and less expensive – sources of information and advice.
Bill Doyle, an analyst for Forrester Research who has studied the industry for more than a decade and is quoted in the column, puts it this way: “I’m paying a lot more attention this time around because the software required to transform this industry finally works.”
Whatever the reason, there’s no doubt that venture capitalists believe this time is different. Consider the funding success of the above seven companies in the past two years ago:
- Wealthfront – Raised $20M in March 2013
- Personal Capital – Raised $25M in June 2013
- Jemstep – Raised $6M in February 2012
- FutureAdvisor – Raised $5M in August 2012
- Betterment – Raised $10M in October 2012
- SigFig – Raised $15M in July 2013
- LearnVest – Raised $16.5 in July 2013
Note also that Wealthfront, which helps get investors into low-cost diversified portfolios, has assets under management (AUM) of $300 million. Betterment has a similar model and has AUM of $250 million.