As the buzz around the "robo-advisors" continues, this week marks another two big announcements: Betterment has raised another $32M in a fresh round of venture funding, with another $28M for Learnvest, following on the heels of $35M from Wealthfront just two weeks ago. Collectively, the three platforms have raised a whopping $95M in just the past two weeks, with the total collective funding for the robo-advisor space approaching a quarter of a billion dollars.
Yet despite all this focus, the actual business and revenue growth results for robo-advisors has been fairly meager, at least so far. The latest fundraising for these three platforms brings their total venture capital funding up to more than $150M, despite the fact that after 3-5 years the companies have been around with "exponential" growth, they cumulatively have less than $5M of revenue. Collective across all the robo-advisor-labeled platforms, actual assets under management (not just fuzzy "advisements") is no more than a few billion dollars, which at the fee schedule for these platforms likely amounts to little more than $10M of revenue for platforms that have cumulative venture capital funding in excess of a quarter of a billion dollars. Which implies, to say the least, that at least a few of these VC investments probably won't work out so well.
Nonetheless, this doesn't mean the robo-advisor trend should be ignored, despite the fact that they have little more than roughly a 1/1000th market share of household investable assets. While there's still little evidence to suggest that robo-advisors are drawing any volume of clients from human advisors, they are demonstrating how the core of constructing and implementing a passive, strategic portfolio can be commoditized for an extremely low cost. In the end, we may look back on this 2009-2014 era as one that transformed technology-driven portfolio construction the way the introduction of the index fund transformed the world of stockpickers 40 years ago. Notably, the introduction of the index fund did not eliminate the need for or value of human advisors, but it did force advisors to continue to evolve their value proposition to keep up, as today's evolving robo-advisors will likely do as well. In fact, in the end, the primary players that get "disrupted" by robo-advisors may not actually be human advisors at all, but the custodians, broker-dealers, asset management, and technology firms that support them!