Should Roboadvisors Maximize Assets or Accounts?

  Source: Autonomous NEXT

Source: Autonomous NEXT

Here is an interesting property of digital wealth management and B2C Fintech startups building brands in the space. We took a look at the most recent regulatory filings of the first wave of roboadvisors (e.g., Betterment, Personal Capital) and the following wave of micro-investing services (e.g., Acorns and Stash). And there seems to be some invisible tradeoff between devoting resources to gathering assets versus gathering users. 

Betterment has $11 billion or so in assets under management with a $40,000 average account size. Personal Capital is at $4 billion ($6.5 billion according to their site), with a $150,000 average account size. From an attention economy perspective, the numbers of accounts is quite modest -- 400,000 and 30,000 respectively. In the tech world, less than a million users is not particularly impressive. Their audience however is an order of magnitude greater than that -- the Personal Capital freemium model has 1.6 million registered users, which is about a 2% conversion rate.

When looking at the micro-investing services, we see around 1.3 million users for both Acorns and Stash. This is an impressive metric on its face, until we dig into average account sizes - between $100 and $600 per client. So the overall assets under management are really quite small at $200-500 million. If this were a single advisor team at Goldman Sachs, with a $50 million budget for marketing (i.e., VC money), they would have been fired for under-performance on asset gathering by this point. But from the point of a tech play, they are similar to a more modern (25 million users), with a monetization option bolted on that is attached to workflow automation.

Similar things can be said about digital banking and lending. For example, take the multi-million user bases of Venmo, Digit, Transferwise or Revolut which maximize for engagement. The transactions and balances are all small. But their account totals will be much higher than that of neobanks trying to gather assets and underwrite loans, like Bank Simple or Moven. We don't think this is just a matter of going downstream in a market to smaller customers. Instead, it is about focusing the product to behave like a media/tech company or a finance company. There is an exception to this trade-off today, and that is Coinbase and other crypto startups. There, we see both a massive number of users and the associated economics behind the business. Coinbase custodies $9 billion in assets from 13 million users -- that's not quite the $5 trillion of BlackRock, but certainly a win both for the operating business and the attention economy. No surprise then that Robinhood is betting on crypto as well -- digital wealth will collide with digital assets.