UBS deal for Wealthfront shows wealth managers’ push for growth and youth
- UBS is buying robo-advisor Wealthfront for $1.4 billion, the companies announced Wednesday.
- Like other banks, UBS is looking for ways to capture the wealth of younger generations.
- Wealthfront helped launch digital advisory, where UBS has been trying to make inroads.
The first firm has a global stable of 9,400 advisers responsible for the financial lives of some of the world’s wealthiest people. Its advisors are among the most elite in the industry, with access to sophisticated investment capabilities and exclusive family office-like services for their clients.
The second company is an automated investing startup established in 2008 that pioneered new apps aimed at serving people with modest savings as part of a friendly rebranding of the financial industry.
The pair may seem like strange bedfellows – but they combine as Wall Street companies take over startups with the aim of both growth and youth.
The Swiss banking and wealth management giant UBS announced on Wednesday that it would acquire Wealthfront, the
known for avoiding human advice and favoring software, for $1.4 billion in cash. Wealthfront, which will sit in the firm’s wealth management unit, said in a statement that UBS was “committed to letting Wealthfront operate under its brand as a stand-alone business.”
Wealthfront’s product set aims to enhance UBS’s digital investment tools and give it a bigger foothold in the United States, where UBS is looking to attract new clients who aren’t ultra-wealthy (the ” rich”, in industry). He had been looking for a sale as early as November, according to reports from Bloomberg and Citywire.
“It’s about the target audience — but also about targeting future customers, now,” Anisha Kothapa, senior fintech analyst at CB Insights, told Insider of the company’s rationale.
With Wealthfront, UBS sees a smaller group of clients that it isn’t currently reaching who may need advisors down the line.
Other wealth managers have made similar plays to reach people who are in the early stages of investing and have not turned to a traditional bank. JPMorgan bought popular UK fintech digital wealth manager Nutmeg last June, and Morgan Stanley made similar bets when it bought E-Trade and Solium Capital, whose clients may eventually need more complex advice from them. full-service advisors.
The deal is also a chance for Ralph Hamers, who took over the helm of UBS in November 2020 as a leader hailed for his digital savvy, to stand out with a sensational deal.
The tie-up “is symbolic of the consumer credit old guard sensing the huge opportunity in the new world,” Joe Percoco, co-CEO and co-founder of investment platform Titan, told Insider. Wealthfront.
“The good assets could start to be recovered”
Wealthfront brings a new generation of digitally savvy customers: some 470,000 users and $27 billion in assets. The company and its competitor Betterment, which remains a standalone business and managed some $32 billion as of last September, have together pioneered low-cost digital wealth management services that banks have only recently built for themselves- same.
While Betterment has a long history of offering financial planner services to its clients, Wealthfront has taken a different approach.
“If you use advisors, you never know if they’re making the best decisions for you…or for themselves,” Wealthfront says on a webpage about its origin story, which implied a co-founder complains about a bill his parents received from a financial adviser.
UBS has not established
presence in the US that big banks like Wells Fargo and JPMorgan have; Wealthfront gives the bank a way to attract new customers to the region.
North America will account for almost 60% of all wealth transferred from older to new generations over the next decade, according to a December report from data provider Wealth-X.
For Wealthfront, meanwhile, the deal with UBS represents a $1.4 billion outflow for a company that has been conspicuously absent from a pandemic-fueled frenzy of venture capital fundraising among fintechs. The company last raised funds in 2018.
The public markets, meanwhile, have not been kind to many fintechs debuting over the past year. And new players have entered the robo-advisory space, which cannot claim the same margins as brokers or online lenders.
“The acquisition activity that already started in January is likely a slight boost for financial services executives that good assets may start to be picked up, which will likely accelerate M&A activity,” he said. writes Mark Batsiyan, COO and partner at Inspired Capital, to Insider.
Without naming specific companies, Batsiyan said the heat is rising for competing startups.
“Some of the next-generation robo-advisors that have been launched in recent years will be under pressure to grow even faster,” he said, as valuations of other companies relative to the assets they manage are above sale price for Wealthfront and digital wealth manager Personal Capital, which Empower Retirement bought in 2020.
UBS’s offer on Wealthfront is also likely to encourage more transactions between
and legacy players, as big names fear the best startups will already be taken if they wait too long to make openings.
“One of the main reasons one would use M&A to get into consumer fintech is that you can hit a speed button” on new products and tools, Titan’s Percoco said.
Using digital tools as a way to attract new generations has been on UBS’s radar for years. John Mathews, head of private wealth management and the ultra-high net worth in the United States, told Insider in 2019 that digital investment tools are part of capitalizing the transfer of wealth between generations.
“We have five years to get it right, otherwise we won’t have any customers,” he said. “That’s my stake in the ground.”