Page 12 - Investment Advisor April/May 2022

INDUSTRY INSIGHTS

By Timothy D. Welsh

The Curious Case of UBS and Wealthfront

Resistance seems futile for robo-advisory firms when deep pockets
come knocking.

’m not usually shocked, but
this shocks me,” veteran indus-
“Itry consultant Gavin Spitzner
said in a LinkedIn post after the world
learned of the head-turning acquisition
of the original robo-advisor Wealthfront
by the legacy bank and wirehouse UBS.
Because Wealthfront founder and for-
mer CEO Andy Rachleff has long been a
vocal critic of the banking and investing
industries, this deal definitely hit the
industry with surprise.
“Everyone hates their cable guy, and
everyone hates their banks,” Rachleff
famously said at an industry confer-
ence in late 2019. He immediately fol- must have had such a scenario in mind each. The problem with this valuation,
lowed up that statement in a more with her hit single “Ironic.” though, is that the actual revenue per
conciliatory tone to say, “However, we As a result, Rachleff and his believ- account is a fraction of that $3,000 pur-
realized that a checking account is a ers are swallowing a bitter pill for hav- chase price.
better entry point for millennials than ing come with much fanfare to disrupt Dividing Wealthfront’s $27 billion
an investment account.” wealth management, only to find them- AUM by its 470,000 clients equals a rela-
Rachleff was commenting on the selves thwarted by the formidable power tively small AUM per account of $57,000,
move Wealthfront recently made to of the human advisor. This undoubtedly and Wealthfront’s pricing schedule of 25
pivot into online banking as the growth encouraged their impatient VC investors basis points (the first $10,000 is free)
in his robo-advisor was slowing. This to sell out to the first buyer that came means that UBS is paying $3,000 for just
was primarily due to everyone realiz- along — even if that buyer was the abso- $117 of annual recurring revenue (ARR),
ing that early adopters of robo-advisors lute antithesis of their vision, in the form which is problematic when looked at on
were actually do-it-yourself investors of a 160-year-old bank and wirehouse. an ROI basis.
who have always been attracted to Despite this juicy schadenfreude, Assuming that we use a market return
low-cost options, and not clients with when you delve into the details in the of 7% for the discount rate, no matter
significant wealth and more complex UBS offer, it immediately becomes clear how many years I plugged into my net
needs that human advisors have typi- that it was a deal that Wealthfront and present value calculator, the result was
cally served. its VC backers couldn’t resist. Let’s see always dramatically negative, mean-
Because there were no barriers to how rich a deal this turned out to be ing there will be no future payoff from
entry, industry incumbents such as and why Wealthfront had to remove current clients. That’s even if those
Schwab, Fidelity, Vanguard and even Rachleff and his anti-advisor rhetoric accounts immediately doubled or even
Merrill Lynch quickly launched similar from the CEO slot just months before in tripled in value tomorrow.
robo-functionality, but with a devastat- order to sell out in a big, big way. Along these lines, let’s take another
ing twist — they offered it “free.” Thus, look at the numbers from TechCrunch
the venture-capital-backed disrupters INSIDE THE NUMBERS in terms of multiples of revenue to gain
were ultimately disrupted by the very According to stats from TechCrunch, further insight. Given Wealthfront’s
same group of incumbents they were UBS is buying roughly half a million cus- annual revenue of roughly $67 million, a
trying to displace. Alanis Morissette tomers for $1.4 billion, or around $3,000 $1.4 billion deal value creates a revenue

10 INVESTMENT ADVISOR APRIL/MAY 2022 | ThinkAdvisor.com