Kitces went on to cite seven reasons why RobustWealth failed to live up to its potential:
1. RobustWealth’s strategy hit reality.
“The strategy was pretty straightforward — if advisors automate trading & rebalancing of their models through ‘robo’ tools, then asset managers can populate the marketplace of models with models that include their own mutual funds/ETFs to boost their distribution,” Kitces tweeted.
However, he pointed out: “The reality is that advisors tend to look to their RIA custodians (e.g., Schwab, Fidelity, TDA) first and foremost for trading tools to implement. Which meant they didn’t want/need third-party tools that the asset managers acquired and offered.”
2. Bigger RIAs tend to use their own in-house models.
“Third-party trading/rebalancing tools are out there,” but they are “commonly tied to performance reporting tools like Orion, Black Diamond, and Tamarac [and] tend to be used by mid-to-large-sized RIAs who are multi-custodial (thus can’t use one custodian’s on-platform tools),” Kitces said.
These RIAs, however, “tend to use their own in-house models because they’re large enough to have their own investment teams to design them,” he noted. “As a result, robo-for-advisors tools have struggled mightily to gain adoption in small or large firms.”
3. They built it, but RIAs didn’t come.
“When the robo-for-advisors tools don’t get adoption, their use as a model marketplace to facilitate distribution of the asset manager’s funds doesn’t work,” according to Kitces. “In essence, asset managers treated robo tools as ‘if you build it, they will come.’ But RIA’s didn’t.”
4. Advisors tend to stick with the model marketplaces they already use.
“In practice the model marketplaces reportedly getting the most traction — via TDA’s iRebal, Envestnet, & Orion’s Communities — were the marketplaces that showed up where advisors already were,” Kitces said. “Not the ones trying to win advisors away from their current platforms.”
5. “Tech matters, but switching costs are brutal.”
“Advisors are MUCH more likely to use expanded offerings where they already are” and that is “why the incumbents who added marketplaces won,” according to Kitces.
6. This has happened before.
“In the broader context, RobustWealth shutting down fits in a series of recent similar events, including WisdomTree spinning off AdvisorEngine, and Oranj shutting down entirely,” Kitces said. “All built around model marketplace models where advisors just didn’t show up to buy models from them,” he noted.
7. There is no magic bullet.
This is a “powerful reminder that, in the end, such tech tools “aren’t a magic bullet solution for asset managers & other manufacturers to open the door to the RIA channel,” Kitces said.
However, “I don’t think the shutdown of so many model marketplaces contravenes the broader advisor trend of increasing outsourcing of investment management,” according to Kitces. “AdvisorTech IS still increasingly a distribution channel for products.”