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A Turning Point for Robo Advisors?

Is the robo advisor market maturing? With another $16 million raised by NextCapital, which now has raised $300 million, it might be a sign of smart money picking the winners. So why could the latest round by NextCapital be a turning point for robos?

The biggest eye opener is that two giant money managers, ABGlobal and Manulife, invested the latest round. Secondly, NextCapital’s founder Rob Foregger, who also co-founded Personal Capital, is focused on the 401(k) business, as are his more recent investors. NextCapital aims to build customizable solutions for record keepers looking who may be looking for ways to capture asset based revenue as advisors and plan sponsors are moving away from proprietary products. Finally, the DOL conflict-of-interest rule, once finalized, could push smaller investors towards low cost, automated IRA solutions.

Consolidation Curve,” a Harvard Business Review article, identifies four stages as an industry matures. Though the robo advisor market is still in the “Opening” phase, which starts with a few large companies followed quickly by lots of competitors, the industry may now be entering the second phase, “Scale,” in which a few start getting bigger by building scale.

Experts are predicting that new venture capital money will be looking for winners or those looking to build an enterprise digital model, not your run-of-the-mill robo advisor. According to a Deloitte report, established money managers face a decision to:


Long only, active equity DC money managers without a viable TDF strategy are looking for a light at the end of the tunnel, hoping that the light is not the TDF train barreling down the tracks. Perhaps winners in the robo advice market, especially those focused on 401(k)s with the pending DOL rule, offer a ray of hope to money managers like ABGlobal and Manulife.

Opinions expressed are those of the author, and do not necessarily reflect the views of NAPA or its members.

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