Competing with an Improving Mousetrap

At Optima Group, we have been spending a good deal of time lately examining and comparing industry pricing structures. For better or worse, robo-advisers have popularized portfolio management fees at the sub-50 b.p. level, challenging full service providers to justify charges that can often be more than double.

One argument for higher pricing has been that the simple ETF portfolios of the better known robos are not suitable for HNW or UHNW clients, who have sophisticated needs that are better served by more complex holdings-overlaid robust tax and risk management. This argument holds to a degree for the more well-known robos like Wealthfront or Betterment that are geared to the mass affluent. But it is not as strong for others like Hedgeable that have squarely targeted the higher end of the affluent market.

From an investment point of view, Hedgeable includes most of the features attractive to the wealth market. The firm builds complex, customized portfolios that combine a broad range of investment vehicles, including ETFs, individual stocks, REITs, MLPs and other alternatives. There is a built-in mechanism for downside protection, as well as access to venture capital through a specialized fund. Held away accounts including mortgages, loans and credit cards can be aggregated on the platform. There are special features such as a reward program. And, the firm has just added an AI tool to provide individualized tax optimization, tax budgeting and transition services. All in pricing for accounts above $1 million is 30 b.p.

While the offering is robust, Hedgeable, which was founded in 2009, has yet to catch on. AUM is reportedly still below $100 million. This may be because of the difficulty in directly marketing a sophisticated platform, or, the reticence of most well-heeled investors to trust significant wealth to a machine. Regardless of the reason for its initial lack of traction, traditional wealth managers planning their future marketing strategy should not take the competitive challenge of Hedgeable, and similarly targeted robos, lightly.