Invesco buys Jemstep: why asset managers are driving robo consolidation

First BlackRock buys FutureAdvisor, now Invesco snaps up Jemstep. Consolidation of the robo advisor space is heating up, with asset managers leading the way. Why asset managers? Simply put, they are keen on improving distribution and reversing the erosion of pricing power caused by:

• Their distance from the end consumer of their product (i.e. the retail investor), which has given them limited pricing leverage as well as something of a tin ear for investor needs
• Brutal price competition in the ETF space itself

Note that this deal, as with the BlackRock purchase, is first and foremost a B2B play. Invesco wants to secure distribution for its flagship PowerShares product by harnessing Jemstep’s robust onboarding and aggregation capabilities. These capabilities have been a differentiator for Jemstep in the robo space since it first targeted RIAs and brokerages via the launch of its AdvisorPro platform in 2014. Time to Cash Out? Jemstep’s motivations are more obvious. Despite some success in the RIA space (in part due to its partnership with portfolio reporting system provider Orion Advisor Services), the firm has been burning cash and under pressure. Furthermore, all the hype around the B2B model (as opposed to the B2C model with its high costs of customer acquisition) cannot disguise the fact that the use of digital distribution by real life advisors is a model still untested. Fundamental questions remain at play: Should robo function as a feeder system (i.e. a means of serving younger and less affluent clients? How does one integrate automated distribution with a value proposition centered on access to a real life advisor? Also, what happens when the client ages and accrues enough assets to merit face to face consultation. Is he likely to forswear digital channels and “graduate” to the (more expensive) real life advisor? It will be interesting to see what Invesco paid for Jemstep. I’m guessing in the $100 million range, but it could well be less. Schwab was able to launch its own robo advisor, and Fidelity, Merrill Lynch and others plan to do the same. Invesco may have decided to buy, but momentum is on the side of “build”. That’s among the reasons why Personal Capital hasn’t found takers for its $400 million asking price.