"In order to succeed independent robos need to achieve scale. We believe that customer acquisition costs have proven higher than many initially expected, and given robos charge very little and often have low average client account balances, this means it can take years for a customer to become profitable for them,” says David Goldstone, research analyst at Martinsville, N.J.-based Backend Benchmarking, publisher of The Robo Report. “Robos that lack appeal to broader demographics must be highly successful in their niche to succeed.”
Also, in recent years incumbent financial firms like Vanguard, Charles Schwab and Merrill Lynch have launched their own digital advice offerings to compete with the standalone technology firms and niche providers, funneling potential assets and market share away from the upstarts.
Nevertheless, Goldstone believes there is still a bright future for roboadvisor technology in financial planning.
“Robo advice will become a permanent fixture in the financial advice landscape. Betterment, Vanguard, Schwab and others have already found success attracting self-directed and new-to-investing clients with these products,” he said. “The closure of smaller independent robos is not indicative of the long-term success of this technology. There is space for a handful of independent robos to achieve sufficient scale to succeed in the long term."