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Wealthfront’s UBS Purchase Advisor, Take on Collision Course

According to an announcement, UBS is buying software-only automated advice platform Wealthfront for $1.4 billion. The deal marks the end of independence for Wealthfront, which was founded in 2008 and stood as one of the original so-called robo advisors. In more than a decade since its launch (originally Kaching, as a mutual fund analysis company), Wealthfront has amassed more than 470,000 US-based clients and more than $27 billion in assets.

The deal will help Wealthfront more quickly, Wealthfront CEO David Fortunato said in an email to customers. Wealthfront employees were introduced to UBS Management in 2020, when Wealthfront was exploring banking relationships.

“It was clear from the start that we shared similar values ​​and culture,” he said in the email. “You will not see any change in your experience or the cost of our service, and you can expect to benefit from the breadth of UBS’s products, services and intellectual capital.” Fortunato also promised faster innovation and more research.

While UBS has its own wealth management technology, it also has human advisors – about 6,000 of them in the US alone – a category of professional that Wealthfront has famously abandoned.

“The hybrid model hasn’t worked at all,” Andy Rachleff, co-founder and executive chairman of Wealthfront, told attendees at the 2020 CB Insights Future of Fintech event. “We have been validated in the approach we take.”

Fortunato said the firm’s philosophy, as well as its fees, will not change with the acquisition. But this apparently does not include the firm’s stance on hybrid advice.

“Wealthfront’s capabilities will form the basis of [UBS’s] The new digital offering, which will also include access to remote human mentoring,” according to the announcement—not to mention a change in Fortunato’s email to existing customers.

Despite the downside that Wealthfront has historically held onto human-tech hybrid advice, UBS sees the deal as a boon to its US business expansion. “Wealthfront complements our core business in the US,” UBS Group CEO Ralph Hammer said in a statement. UBS is already connecting its advisors with HNW and UHNW investors, he said, and Wealthfront “will enhance our long-term ambition to deliver a scalable, digital-led wealth management solution to wealthy investors.”

Users of Wealthfront will benefit from the “thought leadership” provided by UBS, as well as its global reach and “deep shelf of products and services”.

It wasn’t just the products mentioned. According to an email Fortunato sent to customers, the deal will give Wealthfront end-customers “even more compelling products and services now that we have UBS as a partner.”

Last year, Wealthfront added crypto investment options to its investment menu, as well as a build-your-own portfolio feature. “Our desire to innovate has not changed,” Fortunato said.

Alois Peerker, director of wealth management practice at Eight-Novarica Group, said the acquisition closed the door on Sigfig. As recently as 2018, UBS introduced a Sigfig-designed digital mentoring platform for its US-based wealth management clients.

The future of that platform suddenly looks different. “You can’t have two service models,” Pirkar said.

In 2016, UBS was part of a $40 million investment round in Sigfig. At the time, UBS executives considered the purchase to be better than the building, according to Tom Nartil, president of UBS America. UBS was also part of Sigfig’s $50 million funding round in 2018. “Wealthfront will expand on UBS’s existing offering. [UBS’s] Wealth Advice Center, which focuses on serving core affluent clients, and its Workplace Wealth Solutions business, which works with employees of corporate clients on equity plan partnerships, financial education and retirement programs,” according to the announcement.

Ratchleaf’s negative stance on hybrid advice will also play out. The co-founder will retire after the acquisition closes, said Kate Walk, chief communications officer at Wealthfront. Fortunato will continue as CEO of the business unit and the acquisition is expected to close in the second half of 2022.

The acquisition of UBS also narrows the field of potential contenders for betterment, while increasing the likelihood that the firm will be acquired, Pirkar said. Morgan Stanley, Bank of America and BofA Securities (formerly Bank of America Merrill Lynch), Charles Schwab, JP Morgan, Empower and Vanguard are unlikely to buy Betterment. Potential acquirers could be Citi or Goldman Sachs, he said.

William Trout, director of wealth management at Javelin Strategy and Research, said while the big splash is around US expansion, UBS could also be making a “stealth move” into direct indexing. “Wealthfront was one of the first firms to launch a direct indexing platform for investors in 2013,” he said. Technique.

Despite assurances of cultural and philosophical alignment, as Trout predicted, the integration of Wealthfront into UBS would be a challenge.

“UBS continues to evolve under Ralph Hammer,” he said, “but the brand is strongly associated with the white-glove, high-touch wealth management model. One has to wonder how the name of UBS correlates with the tech-friendly Wealthfront clientele. It’s going to harmonize.”

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