By Andrew Welsch
Financial services company SoFi is overhauling its robo-advisor offering by adding new investment options and its first-ever fee.
The company's revamped robo-advisor charges clients an annual 0.25% fee based on assets. It's the first time the San Francisco-based company has charged clients for using its robo-advisor.
The annual fee, which doesn't include expenses charged by mutual funds and ETFs, is in line with what other robo-advisors charge and well below what traditional human financial advisors charge.
"The goal behind [the new charge] was introducing a simple and transparent fee that is low and that matches not just what we launched today, but what we will launch in the future," says Brian Walsh, head of advice and planning at SoFi.
David Goldstone, manager of investment research at Condor Capital Wealth Management, says it's not surprising that the company began charging for its automated investing service; other robo-advisors have followed a similar pattern of prioritizing growth first, and then profitability. "So I've been expecting them to eventually charge a fee for this product, " Goldstone says.
Adding alts. SoFi has also expanded the portfolio themes customers can choose from, adding a new alternative investing portfolio option, which includes real estate and multi-strategy funds. SoFi's other portfolio themes are "classic," which consists of equities and fixed income, and socially responsible. Customers can get started investing with as little as $50, according to the company's website.
The portfolios are built in partnership with BlackRock, the world's largest asset manager. SoFi says that it is enabling a wider range of investors to get exposure to alternative investments which typically have high investment minimums.
The company is utilizing BlackRock's Aladdin platform, a portfolio management and risk analytics software system, to generate model portfolios for clients. The models "predominantly and sometimes exclusively" utilize BlackRock's iShares ETFs, according to SoFi's wrap fee program brochure, filed with the Securities and Exchange Commission.
Depending on an investor's risk tolerance, SoFi's alts portfolios can include allocations to funds such as BlackRock Global Equity Market Neutral Fund Institutional Shares (BDMIX) and BlackRock Real Estate Securities Fund Institutional Shares (BIREX).
Walsh says SoFi's approach is to offer investors additional portfolio diversification through exposure to alternative investments and strategies. The company relies on mutual funds and ETFs in part to maintain liquidity and investment minimums.
SoFi intends to expand the selection of portfolio themes, according to Walsh. It will also periodically review existing portfolio options with an eye to adding new funds in concert with BlackRock and SoFi's investment committee.
SoFi's robo-advisor has been steadily growing, Walsh says. Assets recently topped $1.3 billion, up from $800 roughly a year ago. The robo serves more than 175,000 customers. It also fits within SoFi's spectrum of personal financial offerings, which includes student loan refinancing, banking, mortgages, and credit cards. Walsh says the robo-advisor is picking up first-time SoFi customers as well as customers who have used SoFi's other services.
"That's a benefit of what we are trying to be, and that's the digital one-stop shop for customers: You can have your saving, checking, and investing all in one place," he says.
Shares of San Francisco-based SoFi were down 2.2% Tuesday afternoon, but are up 38.69% this year. That compares with a year-to-date gain for the S&P 500 of 25.58%.
The company's changes to its robo-advisor comes as the digital advice sector is maturing and consolidating. In recent years, some robo-advisors have shuttered or sold to other companies.
For instance, earlier this year, Goldman Sachs sold Marcus Invest's digital investing accounts to robo-advisor Betterment. Some companies have increasingly emphasized hybrid human-digital offerings. JPMorgan Chase closed its pure digital robo-advisor, citing profitability challenges, but still offers its hybrid robo-advisor.
Other companies, such as Charles Schwab and Wealthfront, have managed to achieve sufficient scale with their robo offerings.
"At the end of the day, there are a couple of things that are difficult about this business," says Goldstone of Condor Capital, which partners with Barron's on an annual ranking of robo-advisors.
"First, you have to operate on thin margins because the cost of what you charge for these products is very low. And I think that customer acquisition costs have always been high -- and higher than many people expected them to originally be. That's because it's difficult to organically attract wealth management clients. There are a lot of behavioral hurdles to attract someone. Offering a product for free isn't enough."
Write to Andrew Welsch at andrew.welsch@barrons.com
This content was created by Barron's, which is operated by Dow Jones & Co. Barron's is published independently from Dow Jones Newswires and The Wall Street Journal.
(END) Dow Jones Newswires
November 12, 2024 17:04 ET (22:04 GMT)
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