While others are making a big bet on the robo advisor wave, LPL is backing away. On a recent earnings call, LPL’s CEO Mark Casady explained why they are shutting down Nestwise, which had been an early entry into the robo advisor movement.
Meanwhile, Schwab’s CEO Walt Bettinger sounded bullish about robo advisors, calling it a $400 billion opportunity; and Vanguard’s online offering continues to pick up steam. VC firms continue to pour money into the sector (WSJ subscriber-only content), with nearly $300 million invested in 2014 — twice the amount allocated in 2013 and 10 times what was invested in 2010.
Casady stated that robo advisors are expensive to build and staff but generate very few opportunities for advisors. Perhaps Schwab and Vanguard are more comfortable with robo advisors, since they focus on retail and self-directed investing. Casady explained that robo advisors are not a threat to in-person advisors who can engage and create customized financial plans enabled by technology.
Envestnet recently bought Upside, a fledging robo advisor, enhancing their sophisticated TAMP technology with a user-facing front end. Upside had only raised $1.5 million, and the purchase price is rumored to be less than $2 million.
Based on recent financing, the top three robo advisors are valued at nearly $1.5 billion (WSJ subscriber-only content), with valuations close to 25 times revenue — which only high fliers like Uber enjoy — even though AUM for the top four robo advisors is under $4 billion.
But analysts point to the recent IPO of Lending Club, which matches borrowers and lenders online. It was valued at $7.8 billion, or 35 times projected revenue.
