Can ‘Gen-2’ Robo-Advisors Take On Wall Street?

Automated advice platforms were supposed to upend the industry. Here comes the next generation, maybe.

Robo-advisors are gaining plenty of traction as incumbents and newcomers flood the market. Almost every financial services provider, from industry stalwarts like Vanguard to relative upstarts like PortfolioPilot, has some combination of digital options available to customers. But with advancements in artificial intelligence, new tools and deeper personalizations may soon be at investors’ fingertips. Executives are hoping the next generation of platforms will have the power to reshape the online advice industry.

“There’s a massive opportunity there,” said Alexander Harmsen, CEO of Global Predictions, a tech firm that launched a “Gen-2” robo-advisor PortfolioPilot in 2022. “Millennials in particular are looking for personalization and opinionated insights on their finances — and are actively avoiding human financial advisors,” he told The Daily Upside.

PortfolioPilot has connected $20 billion worth of assets to its platform in just two years, and recently, it closed a $2 million seed funding round. The platform claims to provide an AI assistant and personalized recommendations from an insights engine in just minutes, according to its website.

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Some of Wall Street’s biggest banks haven’t found the same success — and some have had downright failures. In December, JPMorgan Chase announced it was shutting down its auto-investing option due to lack of demand. And this April, Goldman Sachs struck a deal to transfer clients from its robo-advisor Marcus Invest to Betterment.

“I’m not surprised they’re bowing out,” Harmsen said. The original independent robos have not been the disruptors people originally expected, he said, calling them part of a wave of first-generation products. “It feels like a race to the bottom across the industry, with everyone competing on fees,” he said.

Machines Are Just Cheaper. Ultra-high-net-worth individuals — those with investable assets worth at least $30 million — still want a human in power, but robo-advisors might be a good option for relatively lower-net worth investors. “We can avoid the absolutely massive variable costs that come from salaries for ‘frontline’ financial advisors,” he said, adding that most costs for a traditional RIA don’t come from generating “meaningful” financial advice.

Harmsen said his product would be most useful to fairly seasoned investors with net worths between $100,000 and $5 million, and that the median user has about $450,000 on the platform. If you get enough of those folks, he said, that can sustain a business.