Last week I was talking to a friend that I hadn’t seen in a couple of years. Out of the blue, he asked me if I paid any attention to the stock market and if I’d heard of an investment manager called Wealthfront. My friend is not in the financial industry nor is he a Silicon Valley entrepreneur. In fact, he’s an East Coast dentist and a boomer, not exactly Wealthfront’s prime target market.
Shortly after that conversation, a colleague brought to my attention an announcement by Wealthfront that the firm had topped $1 billion in AUM, a milestone reached in just 2.5 years. After review of Betterment, the other internet wealth management startup, I found out its AUM was north of $500 million and according to management rising at 10% a month.
Typically successful RIAs reach a plateau in their evolution when the natural market is exhausted. At such inflection points, new strategies need to be applied and new markets explored to encourage growth. But often the hurdles preventing scalability such as inefficiencies in production or confinements to regional markets are too high to overcome.
It will be interesting to see if internet wealth managers have a natural plateau or if their market appeal proves broad enough to fully leverage their intrinsic production and direct distribution efficiencies. If my friend’s question is any indication, the reality may be more the latter than the former.