Why Wealthfront Sold Out to UBS
And now, with digital industry leaders such as Schwab and Fidelity offering free robo-services, UBS most likely will have to adopt a similar pricing structure just to stay competitive, let alone stop client defections now that the independent, anti-establishment spirit of Wealthfront has been replaced with a massive, centuries-old Swiss bank.
The Big Why
Further rationalizations of the deal, according to UBS, will be its ability to grow and attract affluent next-generation clients through access to remote human advice, a major change in the philosophy and ethos of Wealthfront’s culture to rely only on technology — not people — to deliver advisory services.
Will the 470,000 self-directed clients of Wealthfront who signed up for a digital experience suddenly change their minds and want hybrid tech-and-human advice? And where will UBS get these people — its well-compensated advisory force will not be thrilled to now be working with these relatively tiny accounts. So how can they do this profitably by adding an expense layer of people when the competitive price points are at zero?
To confirm this notion, let’s check back in with our friend Andy Rachleff. “The hybrid model hasn’t worked at all,” he declared at another fintech conference in late 2020. “We’ve been validated in the approach that we take.” He was referring to the fact that Wealthfront users were younger and “wanted to learn this on their own,” not from an aging Generation X or baby-boomer advisor.
Thus, the only answer has to be for UBS to dust off the product playbook and try to cross-sell UBS products to its newly acquired accounts, as well as put those same proprietary products into the Wealthfront robo-portfolios. In fact, that is exactly what CEO Ralph Hamers, Group CEO of UBS, alludes to in the company announcement.
“Following the transaction, Wealthfront and its clients will benefit from access to UBS’s leading wealth management capabilities, including the UBS Chief Investment Office’s best-in-class thought leadership, an unrivaled global footprint, and deep products and services shelf.
Ah — there it is — Wall Street’s product strategy never gets old!
We will have to let the deal play out to determine whether or not this apples-and-oranges tie-up will ever make sense. History, however, has not been kind to legacy financial services companies buying technology platforms. Most notably, Northwestern Mutual thought that buying the financial planning technology of Learnvest would be a great way to break into the digital advice world.
But as we know, that didn’t work, and it completely shut down Learnvest. Similarly, Principal took a flier on the digital advice platform RobustWealth, had the same result, and shut it down as well.
What makes this deal even more curious, however, is that UBS actually had invested in and developed a robo-advisor of its own called SmartWealth a few years ago, but ultimately sold it to the startup robo-advisor SigFig, which UBS had a significant investment in, and still relies upon for UBS’ outsourced digital advice offering. In the announcement of that deal, UBS management said that SmartWealth had “limited short-term potential.”
So why does UBS now think that dropping nearly a billion and a half dollars on another robo-advisor will be any different? And what happens to SigFig as UBS still maintains an ownership interest?
All great questions, of course, but to put this deal in perspective, that $1.4 billion purchase price is a fraction of the nearly $20 billion in fines and penalties UBS has paid over the last 20-plus years, if you include the $2 billion fine UBS just recently received for enabling wealthy French people to evade taxes. So they can afford to roll the dice with yet another robo-advisor.
Ultimately, though, for those keeping score at home, the sad tale of Wealthfront is yet another example of how technology alone will never replace the human touch when it comes to personal finance, investing and helping people achieve their long-term financial goals.
(Photo: Shutterstock)
Timothy D. Welsh, CFP, is president, CEO and founder of Nexus Strategy LLC, a leading consulting firm to the wealth management industry. He can be reached at [email protected] or on Twitter @NexusStrategy.
