B2B Robo-Advisor

A B2B robo-advisor is a digital automated portfolio management platform that is used by financial advisors. More formally known as a "business-to-business robo-advisor,' such automated investment platforms are offered by traditional brokerages and investment advisory firms to enhance the client experience by including their investors in the digital investment sphere.

The fintech revolution has introduced a lot of disruptive innovations into the financial industry. One of these revolutionary technology is the robo-advisor which aims to provide easily accessible financial products at minimal costs to the users. The robo-advisor platform is an algorithmic system that automatically creates a portfolio for its user based on the user’s risk tolerance, current income, time horizon, and most other metrics that traditional advisors would normally take into consideration. Robo-advisors manage taxable accounts and retirement accounts in investment portfolios mostly limited to exchange-traded funds (ETFs). In addition to constructing an ETF portfolio, robo-advisors also frequently rebalance the portfolio, reinvest dividends, and perform tax loss harvesting measures for their clients. While it seems that robo-advisors have all it takes to reach the masses, the sector is plagued by high acquisition costs for clients that could run to about $1,000 per client. The high acquisition costs coupled with the growing opportunities within the sector has led to a number of Registered Investment Advisors (RIA) and brokers syncing their services with robo advisor platforms, and vice versa.

B2B robo advisors consist of a network of RIAs and brokers that seek to take advantage of the low-cost robo advisory platforms, and pass these low costs on to their clients. Also, by incorporating robo-advisors, financial advisors are able to include their established clients into the dominating financial tech world. B2B robo advisory platforms operate in a number of ways including having a customized platform that gels with the operations and needs of the financial institution that adapts it, being built specifically for an existing non-discretionary platform, and partnering with financial advisors that can integrate the B2B robo-advisor into their daily operations.

Envestnet’s B2B robo advisor, Upside Advisor, operates as an RIA and fiduciary, and acts as an advisor to other RIAs. As a fiduciary, they can execute discretionary trades for financial advisors who want a hands-off approach in managing their clients’ portfolios. The B2B platform provides an automated trading system which can be customized for Upside’s clients who integrate it into their existing web portal. Financial advisors like TD Ameritrade and broker-dealers like Shareholders Service Group (SSG) who want to offer some automated investment services of their own use the B2B advisory platform created by Upside to automatically rebalance portfolios, open paperless accounts, and select portfolios for clients. Upside’s clients are also able to create their own portfolios to include investments other than ETFs like mutual funds and equities. Not all B2B robo-advisors are RIAs which means brokers or advisors that use these platforms will have to execute the trades that the robo-advisor system generates.

Some financial institutions that recognize the huge potential of robo advisors build their own B2B robo-advisor platforms rather than acquire them. American brokerage and banking firm, Charles Schwab built its own proprietary automated system, called Institutional Intelligent Portfolios, through which it offers free investment plans picked by its robo-advisor’s computer algorithms. Charles Schwab’s B2B robo-advisor enables RIAs to create a wide range of portfolio sets which reflects their investment strategies. The platform also automates tax loss harvesting and portfolio rebalancing which can be performed daily, tasks that traditional advisors do annually due to the time consuming process of these activities. RIAs that use this B2B robo-advisor have no account service fees, trading commissions, or custody fees charged to them.

Some B2B robo-advisors are partnering with the large financial institutions rather than competing with them in order to enhance their client’s experience in investing and managing portfolios. While some financial institutions buyout the robo-advisor for the firm’s specific use, others acquire the robo-advisor to lease out to brokerages and advisory firms. Blackrock acquired the robo advisor FutureAdvisor in 2015 to act an advisor to its advisors, and also to lease the advisor platform to a wide range of banks, broker-dealers, insurance companies, and other advisory firms. The FutureAdvisor system allows advisors to reject some investment recommendations generated by its algorithms. This way, the advisor still has control over their investment strategy and the system will have to re-evaluate its recommendations if any gets rejected. Bambu, a B2B advisor in Asia, is in partnership with Thomson Reuters, Tigerspike, Finantix, and Eigencat to create an advisory platform that will be leased to companies in need of automated advisory tools.

There is no one rule to the operations of a B2B robo-advisor. Some companies like Charles Schwab and Betterment have both B2C and B2B robo-advisor applications. Some Robo-advisors start off as B2C and switch to B2B due to the high client acquisition and marketing costs prevalent in the B2C market. FutureAdvisor was a B2C robo-advisor until it was acquired by Blackrock and changed to a B2B advisor. Some financial advisors that implement B2B robo-advisors program the system in such a way that it only recommends ETFs offered by the financial institution. For all its worth, B2B clients enjoy low fees from using these services as the cost of automating investment products and services ranges from 0% to 0.5% of account value.