Yesterday, Blackrock announced that it was acquiring FutureAdvisor, one of the three original and “pure” robo-advisors who have been gathering assets and managing ETF portfolios directly for consumers. And despite FutureAdvisor having “just” $600M of AUM, and an estimated $3M of revenues, Blackrock’s purchase was rumored to be in excess of $150M.
However, it appears that Blackrock’s strategy was not simply to buy FutureAdvisor to expand its direct-to-consumer solution, but instead to pivot FutureAdvisor to become a robo-advisor-for-advisors solution, and license/offer the technology platform to a wide range of broker-dealers, insurance companies, banks, and custodians to turn their human advisors into tech-augmented "cyborg" advisors. In this context, as the world’s largest asset manager and a leading player in the ETF space already, the Blackrock deal appears to be visioned primarily as a means to further grow the size of the ETF pie and the Blackrock (iShares) market share by driving distribution to its ETFs through this new technology platform. The robo-advisor is now a distribution channel.
For financial advisors, the “good” news of the Blackrock deal is that “robo” tools may soon become increasingly available to a wider and wider range of advisor platforms. And ironically, because iShares – like Schwab’s Intelligent Institutional Portfolios – can profit from the underlying ETFs held in the portfolio, the future Blackrock FutureAdvisor solution may even undercut existing robo-advisor platforms, as the established financial services industry players continue to apply more and more pressure to the direct-to-consumer robo-advisor solutions. In other words, advisors and established firms are now driving the cost of robo-technology down to zero, relying on their ability to profit from the ‘traditional’ channels of manufacturing investment products (e.g., ETFs) and delivering personal financial advice, and out-commoditizing the robo-advisor commoditization.