Despite the news that Wealthfront has secured a further $75 million in funding, critics from traditional financial advice firms have taken to Twitter to voice their doubts about their sustainability, according to InvestmentNews.
Luring Investors Because They Can’t Grow AUM?
There has long been a debate about the direct-to-consumer robo-advisors’ ability to be profitable and sustainable, the publication writes. Industry insiders have cited high client acquisition costs and even higher marketing costs as potential issues, InvestmentNews writes.
Belay Advisor president Steve Sanduski voiced his concern on Twitter about Wealthfront needing “another $75 million in capital to get to profitability” — a sentiment shared by Ross Gerber, president and CEO of Gerber Kawasaki, who tweeted that the funding will be used to “continue to promote their under-performing portfolios and loans,” speculating that young investors are moving away from robo-advisors, according to the publication.
However, Wealthfront’s spokesperson Kate Wauck hit back, saying via direct message on Twitter that the firm had a “very clear path to profitability” and wasn’t spending “horrendous” amounts on marketing. Investment News also writes that Wealthfront founder Andy Rachleff assured skeptics that this round of funding, led by Tiger Global Management, would prove “more than enough” to push the firm into profitability.
Not all in the financial advice industry were entirely critical, with Michael Kitces of the Pinnacle Advisory Group taking to Twitter to argue that "there's a size and scale where Wealthfront can be profitable," according to the publication This mirrors his 2016 blog, when he wrote that robo-advisors could turn profitable by changing their business models or reaching enough investors, InvestmentNews writes. Betterment is an example of this, finding success through its 401(k) business and white-labeling its technology, according to the publication.
Despite the criticism, Wealthfront manages $9 billion in client assets, acquiring $100 million more just a day before this latest round of funding, InvestmentNews writes.
Wealthfront isn’t the only robo-advisor to have recently secured funding, according to the publication. NextCapital, targeting larger firms, secured $30 million, and the women-focused Ellevest raised a further $34 million, also hoping to attract larger clients with its new full-service wealth management services, writes Investment News.
Meanwhile, Betterment, which has $12 billion in assets under management, secured $70 million of funding in July, according to the publication. Joe Ziemer, the vice president of communications at Betterment, says digital financial services don’t grow like other apps, InvestmentNews writes. They have a “longer runway” to sustainability and profitability, and investors understand this, he tells the publication.