Page 13 - Investment Advisor April/May 2022

multiple of 21 times! That’s a staggering advisory force will not be thrilled to nology of Learnvest would be a great
valuation considering that Schwab paid now be working with these relatively way to break into the digital advice
roughly 4.3 times for TD Ameritrade’s tiny accounts. So how can they do this world. But as we know, that didn’t work,
revenue and Morgan Stanley paid 4.6 profitably by adding an expense layer and it completely shut down Learnvest.
times for E-Trade’s revenue to acquire of people when the competitive price Similarly, Principal took a flier on the
those highly profitable and growing dig- points are at zero? digital advice platform RobustWealth,
ital businesses. To confirm this notion, let’s check had the same result, and shut it down
So there must be other reasons why back in with our friend Andy Rachleff. as well.
UBS would pay such a premium for a “The hybrid model hasn’t worked at all,” What makes this deal even more
tech startup that never really started up he declared at another fintech confer- curious, however, is that UBS actually
after more than 14 years — which in the ence in late 2020. “We’ve been validated had invested in and developed a robo-
tech world is about 589 dog years. in the approach that we take.” He was advisor of its own called SmartWealth
According to the company release, referring to the fact that Wealthfront a few years ago, but ultimately sold
UBS is touting the abil- it to the startup robo advisor
ity to now go after “affluent [Wealthfront’s] Rachleff SigFig, which UBS had a signifi-
Gen Z and millennial” inves- cant investment in, and still relies
tors through Wealthfront’s and his believers are upon for UBS’ outsourced digital
digital platform. That makes advice offering.
sense, but as we have seen, swallowing a bitter pill for So why does UBS now think
Wealthfront’s recent growth that dropping nearly a billion
has been only after it started having come with much and a half dollars on another
offering banking products and fanfare to disrupt wealth robo-advisor will be any differ-
services, not investments. ent? And what happens to SigFig
And now, with digital indus- management, only to find as UBS still maintains an owner-
try leaders such as Schwab and ship interest?
Fidelity offering free robo-ser- themselves thwarted by the All great questions, of course,
vices, UBS most likely will have but to put this deal in perspective,
to adopt a similar pricing struc- formidable power of the that $1.4 billion purchase price is
ture just to stay competitive, a fraction of the nearly $20 bil-
let alone stop client defections human advisor. lion in fines and penalties UBS
now that the independent, has paid over the last 20-plus
anti-establishment spirit of Wealthfront users were younger and “wanted to years, if you include the $2 billion fine
has been replaced with a massive, centu- learn this on their own,” not from an UBS just recently received for enabling
ries-old Swiss bank. aging Gen X or baby-boomer advisor. wealthy French people to evade taxes.
Thus, the only answer has to be for So they can afford to roll the dice with
THE BIG WHY UBS to dust off the product playbook yet another robo-advisor.
Further rationalizations of the deal, and try to cross-sell UBS products to Ultimately, though, for those keep-
according to UBS, will be its ability to its newly acquired accounts, as well as ing score at home, the sad tale of
grow and attract affluent next-gener- put those same proprietary products Wealthfront is yet another example
ation clients through access to remote into the Wealthfront robo-portfolios. of how technology alone will never
human advice, a major change in the Ah, Wall Street’s product strategy never replace the human touch when it comes
philosophy and ethos of Wealthfront’s gets old! to personal finance, investing and help-
culture to rely only on technology — not We will have to let the deal play out ing people achieve their long-term
people — to deliver advisory services. to determine whether or not this apples- financial goals.
Will the 470,000 self-directed cli- and-oranges tie-up will ever make sense.
ents of Wealthfront who signed up for History, however, has not been kind Timothy D. Welsh, CFP, is president, CEO and
a digital experience suddenly change to legacy financial services companies founder of Nexus Strategy LLC, a consulting
their minds and want hybrid tech-and- buying technology platforms. Most firm to the wealth management industry. He
human advice? And where will UBS get notably, Northwestern Mutual thought can be reached at [email protected] or
these people — its well-compensated that buying the financial planning tech- on Twitter @NexusStrategy.

APRIL/MAY 2022 INVESTMENT ADVISOR 11