The world's largest investment manager, BlackRock , announced Wednesday that it is acquiring FutureAdvisor, a quiet but innovative player in the burgeoning robo-advice space. The deal is a reminder the BlackRock is committed to staying ahead of the technological curve, as well as a sign that automated investment advice is here to stay. Starting around 2008, startups began developing software to cheaply manage portfolios for everyday investors. These companies, dubbed robo-advisors, use a client's age and risk tolerance to build a portfolio of exchange traded funds. As the name suggests, no human is involved in the allocation process. Software also incorporates new deposits and handles re-balancing when portfolios veer too far from the original plan. Technology's ability to scale allows these companies to charge a lot less than traditional advisors. FutureAdvisor, for example, founded in 2010, charges 50 basis points to manage retirement accounts and does college savings for free. Bo Lu, FutureAdvisor co-founder and CEO FutureAdvisor founder Bo Lu was not made available for an interview as the deal is finalized. But in past interviews has explained that his goal is to create a platform where clients can get a holistic view of their financial lives. Last summer he told FORBES' Janet Novack that he became interested in responsible investing when he watched his parents become rich through savings and then poor again when the tech bubble crashed in the early 2000s. He started FutureAdvisor after realizing he couldn't get help from an advisor despite earning a healthy salary from Microsoft. "Convenience wins above almost all else," he said of the rise of robo-adivsors. The robo-space has garnered significant attention in the last few years, attracting big name investors, lofty valuations and attempts by some of the largest financial firms around to get in on the action. BlackRock is the first major player to acquire a robo-advisor, but Schwab launched its own earlier this year and Vanguard recently rolled-out a hybrid service that uses technology to connect clients to human advisors. FutureAdvisor's best known competitors Betterment and Wealthfront have each raised more than $100 million in venture capital funding and both have more than $2.6 billion in assets under management. Prior to the acquisition FutureAdvisor had raised $21.5 million from investors including Sequoia Capital, Kapor Capital and Y Combinator and the firm manages about $600 million in assets. According to venture tracking platform PitchBook, FutureAdvisor's last round of funding in May 2014 gave it a valuation $48 million valuation versus Wealthfront's October 2014 valuation of $700 million. BlackRock denies the notion that it sought out FutureAdivsor because the price was right, instead focusing on the technology and cultural fit. (Terms of the deal were not disclosed.) To be fair, though smaller than some of its competitors, FutureAdvisor has developed some of the most unique tools in the robo-advice space. It's the only robo-advisor that offers college savings accounts like 529s, optimizing them for your state of residency. More critically to BlackRock, in addition to managing assets held on its platform, the San Francisco-based company can also manage any existing IRA or taxable account from Fidelity or TD Ameritrade in place, saving investors the hassle of moving their money. FutureAdvisor will continue to offer its retail product under the current name and model. BlackRock plans to expand the technology to its institutional clients through a white label product. Maybe it will be a way for a regional bank to enter into the wealth management business or a means for investment advisors to hang on to their wealthy clients' heirs. "More Americans are responsible for investing for the important life goals, whether that is retirement, education, etc. We think that a broad cross section of that market may be slightly under-served. We believe that is the mass-affluent or those who don't want to seek out a traditional advice model," Frank Porcelli, head of BlackRock’s US Wealth Advisory business, explained in an interview, referring to the large group of Americans who have between $100,000 and $1 million in investable assets. This group, while financial comfortable by many standards, has long been denied much meaningful and affordable money advice."This is a business to business view of how to deploy this particular piece of technology," he said. "The purpose for us it to empower our financial services partners to better serve this market and provide a broader level of advice by leveraging a digital advice platform." When robo-advisors first came on to the scene they were met with skepticism from the traditional industry. No way could some engineers train a robot to get better returns than Wall Street pros. And even if they could, the logic went, they’d never make enough money to keep it going, when it came to their money people wanted to deal with people. BlackRock's bet that its clients will embrace robo-advice shows that attitude is evolving.
Blackrock has agreed to acquire FutureAdvisor, a robo adviser founded in Wednesday, which runs about $230m on behalf of clients and offers 'holistic' advice on investments and manages taxes on portfolios; the deal is said to underscore how quickly the industry believes technology could reshape the market for financial advice. The service will be linked to BlackRock's existing multi-asset portfolios and investment products, and will enable FutureAdvisor's products to be sold to brokers and financial advisers, who in turn can offer them to their clients. The transaction is expected to close in 4Q15.