Giant money manager BlackRock Inc. (BLK) recently acquired robo-advisor FutureAdvisor. Earlier in 2015 Northwestern Mutual Life Insurance Co. acquired LearnVest. In both cases the acquirer has indicated they will let their new acquisitions continue to operate as they had prior to the acquisition.

At one point there was some doubt as to whether or not robo-advisors would ever catch on and compete in the world of traditional financial advisors. These acquisitions and the rapid rise of robo technology among major financial services firms I think erases any doubt that robo-advisors and their technology and methodologies will be part of the landscape. What that part will look like a few years from now remains to be seen. (For more, see: Robo-Advisors and a Human Touch: Better Together?)

The Acquisition

FutureAdvisor, which manages about $600 million in client assets, will continue to serve clients as before from its San Francisco offices. However, BlackRock’s real interest in acquiring FutureAdvisor seems to lie in having access to their technology and platform. This might explain $150 million for a firm that had a reported $3 million in annual revenues.

It has been reported that BlackRock is looking to this technology to help it partner with channels such as banks, independent reps and advisors and broker-dealers in targeting mass affluent clients who are often underserved by registered investment advisors (RIAs) and fee-based advisors. The robo platform from FutureAdvisor will help these advisors provide a level of service that isn’t as high touch as services for wealthy clients but still offers these next tier clients value. Moreover, using this technology to enable these advisor channels to increase their reach to the mass affluent means more product distribution opportunities for BlackRock for its iShares exchange-traded funds (ETFs) and other investment products. The technology was the prize for BlackRock. FutureAdvisor's clients and their formerly core robo-advisor business seems more and more like an afterthought. (For more, see: Blackrock's iShares ETFs.)

Continuing the Trend

The Northwestern Mutual acquisition of LearnVest was not for its technology but rather for its access to millennial clients. Northwestern Mutual is happy to allow LearnVest to operate as an independent unit and to continue to serve its largely younger client base. Northwestern Mutual essentially views LearnVest as a research lab from whom they can learn more about millennials and younger clients in order to find new ways to sell their insurance and financial products to them via their network of agents and registered reps.

Robo Advisors and traditional financial services firms forming an alliance is nothing new. Betterment has an arrangement with Fidelity Investments whereby financial advisors who custody with the firm’s institutional arm have access to Betterment’s platform for use with their clients. Vanguard built its own hybrid robo-advisor platform that is offered to Vanguard clients in combination with the services of a Vanguard financial advisor. For 30 basis points annually the client receives a financial plan, a portfolio selected for them and help with implementation and rebalancing. (For more, see: What Northwestern’s Acquisition of LearnVest Means.)

Charles Schwab Corp. (SCHW) launched its Intelligent Portfolios robo service earlier this year and then followed that up with the launch of its Intelligent Portfolios service for financial advisors who custody client assets with Schwab Institutional. Schwab offers its robo platform to these advisors with some room for customization if they desire. The financial advisors don’t need to build out their own robo platform and they already custody client money with Schwab.

Wave of the Future?

There is no doubt in my mind that BlackRock's acquisition of FutureAdvisor is just the tip of the iceberg as far as traditional financial services forms acquiring Robo Advisors. Are the likes of Betterment, Wealthfront and Personal Capital for sale? I have no idea of course. On the one hand, I’m sure there is a price that would prompt an agreement to be acquired by these and other firms if offered. On the other hand, it is my understanding that these three firms and some others in this space are well capitalized. Whether by acquisition or some sort of alliance like the Betterment-Fidelity arrangement I would expect to see strategic alliances between traditional financial services firms and robo-advisors in the future. (For more, see: Wealthfront Versus Betterment.)

Implications for Advisors

Financial advisor industry expert Michael Kitces speculated in a recent post on his blog that the BlackRock acquisition could signal a wider availability of robo tools and technology to a wider range of advisor platforms. He likens BlackRock’s iShares ETFs to Schwab's use of its ETFs in the portfolios in their Intelligent Portfolios robo tool. BlackRock stands to gain ETF market share via using FutureAdvisor’s platform to allow more financial advisors access to robo technology.

Moreover, Kitces speculates that BlackRock’s huge network of relationships with broker-dealers, insurance companies and custodians could put their new robo technology in the hands of up to 100,000 new financial advisor users over the next couple of years. Given that a high percentage of the assets utilized on these platforms are likely to be its iShares ETFs this could serve to increase BlackRock’s assets under management significantly. (For more, see: How Financial Advisors Can Adjust to Robo-Advisors.)

Implications for Robo-Advisors

While the likes of Betterment and Wealthfront may or may not want to sell, they will feel the competition from BlackRock as well as Schwab and other financial services firms offering robo technology to financial advisors. Will clients who might have flocked to Betterment and Wealthfront now like the fact that there is a robo service with a live financial advisor somehow connected to the allocation of their investments? That there is a financial advisor who can help them with financial planning issues? In short, will the robo-advisor space morph from an independent and distinct advice channel to simply another distribution method for traditional financial advisors?

From the standpoint of traditional financial advisors, these types of alliances can make sense, especially if the firm’s goal is to build client relationships with younger investors and cultivate them into the future high-net-worth target clients of the future as they progress through their careers and inherit wealth from their Baby Boomer parents. (For more, see: Who Wins With Robo-Advisors? Everyone?)

The Bottom Line

Many predicted that robo-advisors would be a disruptive force in the financial advisory world and clearly they were right. What many of these pundits may not have foreseen was the rapid ascent of robo-advisors as a mainstream alternative for clients seeking advice and that large financial services firms and traditional financial advisors would embrace the technology so quickly. (For more, see: What's Next for the Robo-Advisor Space?)

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