Letter from America: All the money in the world Friday 28 Aug 2015

Big news today that BlackRock, which looks after more money than you can POSSIBLY IMAGINE, has brought the robo-adviser (and I might be sitting in New York but I’m still going to spell ‘adviser’ correctly) FutureAdvisor for an undisclosed sum which the FT reckons is between $150m and $200m.

OK, so a takeover, no biggie. Robos are big news here and everyone gets it. They’re massive and a world away from what we have in the UK.

Ah, but wait. FutureAdvisor currently has…$235m on its platform. That’s about £150m. And it’s just sold for (if the FT is right) about £125m. £150m AUA, £125m purchase price.

Well now. If we’re now valuing advice businesses at 83p on the pound then I know a lot of advisers who are going to start getting very excited. Stick ‘robo’ on the front of your firm, rename it to something funky with a capital letter halfway through, and boom! Riches result.

Except, of course, that’s not quite what’s going on. For a start, FutureAdvisor has built a bunch of its own technology, so BlackRock is buying intellectual property rather than assets (it has plenty of those already). How do you value (relatively) early-stage businesses in a sector which is as hot as fintech? Generously, it appears.

(Just a point – a number of adviser firms are starting to offer ‘robo’ type propositions in the UK, which are powered by third-party technologies such as Parmenion’s Interact simplified advice system. Just so we’re clear, the big valuations are for those who’ve developed the tech, not for those who’re licensing it and using it. Sorry.)

Second, the story here is that brand matters. We know this from Schwab, who launched its ‘Intelligent Portfolios’ in March, and now has over $3bn AUA. Was some of that rewritten from Schwab’s own book? Sure. But who cares? That’s $3bn since March. March. Even Betterment, the robo AUA leader, only has $2.5bn to show for a good couple of years effort.

Vanguard’s Personal Advisor Services is a hybrid service, and has $21bn on it. In May, according to Ali Malito of Investment News, that stood at $17bn with $7bn of that being new money. Put in GBP, that’s £13.5bn. Vanguard’s been at this for about 5 months officially, and has taken $4bn during that time. In the 2 year pilot preceding that, it took $7bn of new money.

So BlackRock is coming to the party, on the bet that a nice system (and FutureAdvisor does look nice) added to its very powerful brand, will quickly add billions to its AUA. Don’t forget as well that over here there has been no RDR and no PS13/1, so asset managers and platforms have lots and lots of ways to generate margin from what it is that they do.

It’s getting exciting, sports fans. Coming up soon – ‘is the fintech bubble about to burst?’ stories…

Published on the 26th August 2015 on the lang cat ltd website

 

About Mark Polson: lang cat founder and boss. Expert on all things platforms, pensions and investments. Prolific writer and public speaker, even when people ask him not to be. Thrash metal aficionado.