Thread by @MichaelKitces

And now #AdvisorTech news that another Model Marketplace comes to an end, as Principal announces @RobustWealth is being wound down 3 years after acquiring it... (1/?) #FinTech

https://twitter.com/ryanWneal/status/1403467256517074945

The Robust Wealth acquisition by Principal in 2018 was one of multiple asset managers acquisitions of "robo-advisor-for-advisors" platforms, along w/ WisdomTree buying AdvisorEngine, after Invesco acquiring JemStep, after Blackrock acquired FutureAdvisor. kitces.com/blog/model-mar…

The strategy was pretty straightforward - if advisors automate trading & rebalancing of their models through 'robo' tools, then asset managers can populate the marketplace of models with models that include their own mutual funds/ETFs to boost their distribution.

The strategy was seen as especially appealing for asset managers to reach RIAs, who are not as receptive to traditional wholesalers, and for whom "technology" was seen as the pathway to reach the RIA market.

However, the reality is that advisors tend to look to their RIA custodians (e.g., Schwab, Fidelity, TDA) first and foremost for trading tools to implement. Which meant they didn't want/need third-party tools that the asset managers acquired and offered.

Of course, third-party trading/rebalancing tools are out there - commonly tied to performance reporting tools like Orion, Black Diamond, and Tamarac - but those tend to be used by mid-to-large-sized RIAs who are multi-custodial (thus can't use one custodian's on-platform tools).

But the mid-to-large-sized RIAs tend to use their own in-house models, because they're large enough to have their own investment teams to design them.

As a result, robo-for-advisors tools have struggled mightily to gain adoption in small or large firms.

And when the robo-for-advisors tools don't get adoption, their use as a model marketplace to facilitate distribution of the asset manager's funds doesn't work. In essence, asset managers treated robo tools as "if you build it, they will come". But RIA's didn't.

Thus in practice the model marketplaces reportedly getting the most traction - via TDA's iRebal, Envestnet, & Orion's Communities - were the marketplaces that showed up where advisors already were. Not the ones trying to win advisors away from their current platforms.

In other words, offering #AdvisorTech didn't actually convinced RIAs to switch platforms. Yes, tech matters, but switching costs are brutal. Advisors are MUCH more likely to use expanded offerings where they already are. Thus why the incumbents who added marketplaces won.

In the broader context, RobustWealth shutting down fits in a series of recent similar events, including WisdomTree spinning off AdvisorEngine, and Oranj shutting down entirely. All built around model marketplace models where advisors just didn't show up to buy models from them.

I don't think the shutdown of so many model marketplaces contravenes the broader advisor trend of increasing outsourcing of investment management. And #AdvisorTech IS still increasingly a distribution channel for products. kitces.com/blog/advisor-f…

Nonetheless, it's a powerful reminder that in the end, #AdvisorTech #FinTech aren't a magic bullet solution for asset managers & other manufacturers to open the door to the RIA channel. Either be SO good advisors WILL switch... or show up where they already are? </end>