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How one 'robo-advisor' got $25 billion on its platform with a Mint.com mindset, 401(k) friendliness, a merger and 16 years of work

NextCapital has deals with Barron's, Dow Jones and Russell Investments as part of a brick-by-brick history in a put-up-your-robo-shingle world

Author Kelly O'Mara March 31, 2014 at 4:53 PM
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Rob Foregger left Personal Capital to found NextCapital, which has a rare attribute -- big managed assets.

Stephen Winks

Stephen Winks

March 31, 2014 — 8:06 PM

The missing differentiator of Betterment, WealthFront, Personal Capital, NextCapital and the other 47 Robo Advisors envisioned is the absence of an expert prudent process (Asset/Liability Study, Investment Policy, Portfolio Construction, Monitoring and Management) and the associated technical acumen necessary to execute individualized advice.

In order for advice to be scalable Robo Advisors ignore the most important point, Advice must be built around an expert prudent process ( based on objective non-negotiable fiduciary criteria of statute, case law and regulatory opinion letters) with an accomplished human being to explain it. Process is how expert individualized advice (required by statute) becomes scalable.

Lockchin acknowledges the limitations of Robo Advice via his experience with Betterment. The importance of a definitive expert prudent process with an audit path affirming statutory fiduciary duty is that process trumps technology as process explains what needs to be done. The 50 Robo Advisory firms emerging simply establish what aggregated assets look like as a portfolio (which is of massive importance) but does nothing to tell consumers what each of them must do individually. Unless every consumer wants to be their own counsel, advisors will never be replaced by technology, though important, because explanation will always be required.

SCW

Stephen Winks

Stephen Winks

March 31, 2014 — 8:15 PM

I should have noted that account aggregation as a a tool is essential for advice. By definition this means brokerage firms which have yet to demonstrate any interest in the professional standing of their brokers are easily compromised in their ability to add value as they would not know if they did.

The point is account aggregation is a utility, a nice tool, but not advice.

SCW

Mike Byrnes

Mike Byrnes

March 31, 2014 — 11:01 PM

The 'robo-advisor’ trend will be an interesting one to watch over the next decade.

I think the financial advisor industry will be disrupted more than most people think! — Mike Byrnes, President of Byrnes Consulting, LLC, www.byrnesconsulting.com

Brian Murphy

Brian Murphy

April 1, 2014 — 12:48 AM

I’m not really sure what the significance of various citings of “$25billion” is here. Correct me if I’m wrong, what you’re talking about is $25 billion in assets reported on – not managed, not even advised on…just reported on. What kind of silly vanity metric is that anyways? Exactly what is it indicative of?

FWIW, my team at Kivalia is delivering a different solution to the 401(k) advice problem…self-administered advice. You may want to check that out as well. Good luck to the team at NextCapital nonetheless – there are a lot of opportunities out there.

Brian

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Mike

Mike

February 20, 2015 — 9:02 PM

Great article Kelly! It’s the dawn of a new day in the digital investing industry. There’s a lot of talk about the “Robo 2.0” movement as was discussed here- https://www.hedgeable.com/blog/2014/12/we-dont-need-robots-introducing-the-digital-wealth-manager-2-0/


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Mentioned in this article:

Wealthfront
Portfolio Management System
Top Executive: Andy Rachleff

Betterment, LLC
Financial Planning Software
Top Executive: Jon Stein



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