On August 26, 2015, BlackRock announced that they will be acquiring FutureAdvisor for an undisclosed amount. There are talks of the valuation being between $150 – $200M, which is incredible because they raised a Series B round just last year with a valuation of $75M. This is huge news for the robo-advisory space as BlackRock is one of the largest financial institutions in the world with over $4 trillion in assets under management.
BlackRock plans to sell FutureAdvisor’s automated advisory services to the banks, securities firms and insurance companies that are customers of BlackRock Solutions. The service will be branded FutureAdvisor Powered By BlackRock Solutions.
Bo Lu, Co-Founder of FutureAdvisor, assures clients in a blog post that everything will stay the same, including the office, people, and desire to grow their product to help serve more people to cheaply allocate their capital into the markets.
What’s extremely exciting to me is how FutureAdvisor can leverage BlackRock’s tremendous balance sheet to provide more product improvements, and hopefully lower fees to retail investors! I invited Bo Lu over to my tennis club before to get to know him and his product, and I’m excited to see what the future has in store for his company.
FINTECH GROWTH TO CONTINUE
One of the main reasons why I decided to consult with financial technology companies starting in 2013 is because it seemed so obvious that traditional financial institutions could use a lot of technological help. I worked at two major investment banks for 13 years and would often be amazed by how quickly technology companies could build and scale products so quickly.
BlackRock is the King Kong of gorillas in the financial institutions world, along with Fidelity, Capital, and Vanguard. BlackRock’s purchase of FutureAdvisor completely legitimizes the robo-advisory space. Surely, a new wave of fintech companies will be created, and a tidal wave of capital will seek to invest in existing fintech companies looking to raise capital.
The capital markets are dicey at the moment, and raising capital has subsequently become more difficult. But with BlackRock’s purchase, I have little doubt the likes of Personal Capital and Wealthfront will be able to attract more capital to flourish over the long run. The amount of money a BlackRock or Fidelity would need to acquire any fintech company is de minimis compared to their balance sheets.
GOOD FOR INVESTORS ALL AROUND
Blending traditional investment knowledge with the latest financial technology is a win for retail investors everywhere. We can already analyze our investments for excessive fees and make better asset allocation decisions with the likes of Personal Capital’s financial tools. We can also assemble a 30 position portfolio with Motif Investing for only $9.95, instead of pay $7.95 for each security. And even better, you get up to $150 in free credit for opening up an account.
With inexpensive ETFs and index funds neatly packaged to serve all types of investor goals, there’s never been an easier time to invest. It’s not necessarily clear whether investing in a fintech company or being an employee of a fintech company is an excellent choice given the low margins. However, it’s clear from a retail investor’s standpoint, the fintech movement is fantastic!
For the DIY investor, FutureAdvisor’s free tools and recommendations provide a good second opinion and sanity check for your investment decisions. A lot of times you might think your level of risk exposure is appropriate with your risk tolerance, but often times you’ll be wrong. The good thing about an algorithm is that there is no bias. It will unabashedly tell you what it thinks you should do to become better aligned with your objectives. Then it’s up to you to figure out whether to take its advice or not. Perhaps your investments already have a “B or “A” grade based on their algorithms and you won’t have to do much at all. You won’t know until you try.
If you don’t want to handle the transactions yourself, FutureAdvisor can manage your money for 0.5% of assets per year with a minimum commitment of $10,000. They automatically rebalance, optimize for taxes and can auto-invest new cash when added. Their goal is to get your Performance, Diversification, Fee Efficiency, and Tax Efficiency all to an “A” grade.
Wealthfront is an excellent choice for those who want the lowest fees and can’t be bothered with actively managing their money themselves once they’ve gone through the discovery process. In the long run, it is very hard to outperform any index, therefore, the key is to pay the lowest fees possible while being invested in the market. Wealthfront charges $0 in fees for the first $10,000, only 0.25% for any money over $10,000, and only have a $500 minimum to get started. Invest your idle money cheaply, instead of letting it lose purchasing power due to inflation.
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