ETF titans will eat robo-advice

By David Tuckwell on Monday 18 September 2017

Savings and Investment

High customer acquisition costs mean big ETF providers have a huge edge

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Much has been made of Fidelity, Charles Schwab and Vanguard’s entry into robo-advice. Many fear that these three ETF providers, given their scale, could very quickly eat the whole robo-advice industry. And these fears could be valid. According to a new study, Fidelity, Schwab and Vanguard could gobble up 93 percent of the robo-advice market by 2021, up from the three-quarters market share they currently hold.

Why will these three companies dominate? A survey by Boring Money offers a clue. It found that robo-advice start-ups are spending five times as much on customer acquisition compared with big businesses. Independent robo-advisors spend £500 on average acquiring a single customer, compared with £100 a big bank has to spend.

Another key reason is price: Fidelity, Schwab and Vanguard offer free ETFs. A new PwC survey estimates that total assets stored in ETFs will increase $800bn in two years. And these three companies are well-positioned to take a large slice of this growing pie.

In happier news, there are two new robo-advisors in town that shake things up by targeting old people rather than the young. United Income, a new US-based advisor backed by Morningstar and billionaire Pierre Omidyar, will teach retirees how to turn retirement assets into retirement income as well as how to be efficient with their taxes.

In the UK, a new B2B platform, will let advisors put their clients’ money in a SIPP fund with ease. The company, Fundment, is adding SIPPs to its list of products available to clients. The SIPP will be administered by pension provider Liberty SIPP. The automated system means IFAs can advise clients in less than 10 minutes.

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