{"id":20829,"date":"2016-11-20T10:53:36","date_gmt":"2016-11-20T15:53:36","guid":{"rendered":"https:\/\/digital.hbs.edu\/platform-rctom\/submission\/bringing-robo-advising-to-the-world-one-bank-at-a-time\/"},"modified":"2016-11-20T10:53:36","modified_gmt":"2016-11-20T15:53:36","slug":"bringing-robo-advising-to-the-world-one-bank-at-a-time","status":"publish","type":"hck-submission","link":"https:\/\/d3.harvard.edu\/platform-rctom\/submission\/bringing-robo-advising-to-the-world-one-bank-at-a-time\/","title":{"rendered":"Bringing Robo-advising to the World, One Bank at a Time"},"content":{"rendered":"

Wealth Management and Robo-advising<\/strong><\/p>\n

Globally, wealth managers had $74 trillion in assets under management (AUM) in 2014. \u00a0The percentage of that managed by robo-advisors (automated, algorithm-based portfolio management advice) is currently only a small fraction, but expected to grow incredibly rapidly. [1]<\/p>\n

\"robo-advisor-aum\"<\/a><\/p>\n

 <\/p>\n

SigFig \u2013 The Beginnings<\/strong><\/p>\n

SigFig is a robo-advisor hoping to reap some of the expected rewards during the digital transformation of the wealth management industry. Like its better known cousins Betterment and Wealthfront, SigFig started out with a business-to-consumer (B2C) business model, looking to get consumers directly onto its platform. SigFig, however, was late to the game, launching that service in early 2014, and by mid-2015 only had $69 million under management [2]. In this author\u2019s humble opinion, SigFig had the best technology, so why was it doing so poorly?<\/p>\n

The reason, of course, is that in a highly competitive industry, it is not just the best technology that wins. SigFig\u2019s robo-advisor competitors had been around for longer and had raised more money, allowing for greater marketing. And from an operational perspective, there was limited differentiation from their competitors, who were all small tech companies who were built to iterate quickly and constantly to deliver what needy customers demanded.<\/p>\n

A Change in Business Model to Survive<\/strong><\/p>\n

In mid-2015, SigFig changed its business model from B2C to business-to-business (B2B) [2]. By moving to a less competitive B2B space, SigFig could look to partner with banks who already had significant AUM and more effectively participate in the rapid transformation of the wealth management industry. I think the premise would be that big banks wanted to quickly offer robo-advising to their customers, as well as have a technology that can keep up with its customers\u2019 demands. SigFig was able to build out its technological capabilities so its tech could integrate with the bank\u2019s own system, which allowed for this business model transition.<\/p>\n

SigFig\u2019s DNA as a small tech company meant that it has an operating model that relied on real-time feedback from customers using their technology, and the ability to incorporate that feedback into technological improvement. Banks, on the other hand, were less nimble and in theory would be less comfortable developing their own technology, which may have trouble keeping up in the rapidly moving world of robo-advising.<\/p>\n

SigFig struck its first deal with Cambridge Savings Bank, a $3.2 billion bank, who is calling its SigFig offering Connect Invest. [3] Since then, SigFig has engaged in partnerships with two much larger banks.<\/p>\n

SigFig\u2019s Major Partnerships <\/strong><\/p>\n

UBS Partnership<\/em><\/p>\n

In May 2016, SigFig signed a partnership with UBS. Interestingly, UBS isn\u2019t aiming to use SigFig\u2019s technology to provide robo-advising to the masses. Rather the partnership is \u201cdesigned to enhance and expand the services our advisers can provide to their clients and their overall digital experience,\u201d according to the president of UBS Americas. [4] The use of this technology doesn\u2019t seem to match SigFig\u2019s robo-advising business model \u2013 it looks like its creating wealth management tools, and no advice is being given.<\/p>\n

Despite that, UBS did realize the value of SigFig\u2019s operating model in digital world, noting that \u201cwe wanted to partner with a player who was leading in the industry in the space, who had the ability to adapt rapidly, to prototype rapidly and to launch incremental capabilities in really short timeframes.\u201d [5]<\/p>\n

Wells Fargo Partnership<\/em><\/p>\n

Within the last week, SigFig has engaged in a partnership with Wells Fargo that has a distinctively different flavor to the UBS partnership. Wells Fargo has noted that it hopes to use the partnership to bring robo-advising to its clients, and use this as the gateway for more expensive services. [7] This seems to fit perfectly with SigFig\u2019s business model.<\/p>\n

However, Wells Fargo also stated that the decision to partner rather than build a product in house was due to desire to bring a product to market ASAP, which doesn\u2019t seem to recognize the value of SigFig\u2019s operating model in enhancing technology. [7]<\/p>\n

Next Steps for SigFig<\/strong><\/p>\n

I think fundamentally it doesn\u2019t matter whether SigFig provides robo-advising to banks or not \u2013 banks\u2019 customers are demanding snazzy tech interfaces and information transparency, and SigFig can position itself as the provider of whatever that tech is. What SigFig absolutely needs to do is demonstrate that their operating model allows them to become more intimate with their technology and what customers want, and reflect that understanding quickly in the next iteration of that tech. Whatever SigFig builds, a bank will be able to also build it if given enough time. But they won\u2019t be able to keep it at the cutting edge in the same way a small nimble company like SigFig can. SigFig needs to convince all its partners (looking at you Wells Fargo) that\u2019s the case \u2013 otherwise they won\u2019t be around long enough to see the digital transformation. \u00a0[Word Count: 799 words]<\/p>\n

 <\/p>\n

 <\/p>\n

Sources<\/strong><\/p>\n

1 Sarah Kocianski, \u201cTHE ROBO-ADVISING REPORT: Market Forecasts, key growth drivers, and how automated asset management will change the advisory industry,\u201d Business Insider<\/em>, June 9, 2016, http:\/\/www.businessinsider.com\/the-robo-advising-report-market-forecasts-key-growth-drivers-and-how-automated-asset-management-will-change-the-advisory-industry-2016-6<\/a>, accessed November 2016.<\/p>\n

2 Kelly O\u2019Mara, \u201cWhy SigFig is shifting its focus to using banks as middlemen despite having captive consumer audience of $350 billion,\u201d RIABiz, July 21, 2015, http:\/\/riabiz.com\/a\/2015\/7\/21\/why-sigfig-is-shifting-its-focus-to-using-banks-as-middlemen-despite-having-captive-consumer-audience-with-350-billion<\/a>, accessed November 2016.<\/p>\n

3 Liz Moyer, \u201cNew Financial Investment Rules May Aid Robo Advisers,\u201d New York Times<\/em>, April 7, 2016, http:\/\/www.nytimes.com\/2016\/04\/08\/business\/dealbook\/new-financial-investment-rules-may-aid-robo-advisers.html<\/a>, accessed November 2016.<\/p>\n

4 Michael Wursthorn, \u201cUBS Teams with Robo-Advice Provider, Wall Street Journal<\/em>, May 16, 2016, http:\/\/www.wsj.com\/articles\/ubs-teams-with-robo-advice-provider-1463418199<\/a>, accessed November 2016.<\/p>\n

5 Janet Levaux, \u201cThe UBS-SigFig Partnership,\u201d ThinkAdvisor, September 26, 2016, http:\/\/www.thinkadvisor.com\/2016\/09\/26\/the-ubs-sigfig-partnership?&slreturn=1479651345<\/a>, accessed November 2016.<\/p>\n

6 Michael Wursthorn, \u201cWells Fargo Goes Robo with SigFig Wealth Management,\u201d Wall Street Journal<\/em>, November 15, 2016, http:\/\/www.wsj.com\/articles\/wells-fargo-goes-robo-with-sigfig-wealth-management-1479242552<\/a>, accessed November 2016.<\/p>\n

7 Ryan Neal, \u201cWells Fargo Partners With SigFig to Develop Robo Advisor,\u201d November 15, 2016, WealthManagement.com, http:\/\/www.wealthmanagement.com\/technology\/wells-fargo-partners-sigfig-develop-robo-advisor<\/a>, accessed November 2016.<\/p>\n","protected":false},"excerpt":{"rendered":"

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