Lex Sokolin, global director of fintech strategy and partner at Autonomous Research, said BlackRock has been explicit about building out a digital wealth company of the future, and this move reinforces that strategy.
BlackRock already has an internal division focused on digital wealth, acquired robo-advisory start-up FutureAdvisor and is part owner of European robo-advisor Scalable Capital.
“It’s not a surprise that they are continuing to invest in digital wealth solutions that could distribute their products,” Sokolin said. “Today much of investment product distribution is done through advisors and financial planners. … FutureAdvisor, Acorns, Scalable Capital are all different reimaginings of how people access financial advice and buy investment products.”
He said all of these moves suggest that while BlackRock has a huge advisor-based sales business, the investing giant clearly wants to get closer to the consumer, directly through an app.
The FutureAdvisor deal allowed BlackRock to build out its institutional capabilities, private labeling the software to other RIAs and banks. But Sokolin isn’t convinced that investors who start out by using an app to save will ever migrate up to an advisor. “I’m not sure how many millennial investors using Acorns want to graduate to an advisor. Acorns has strong traction and a large user base but is “DIY and [has] very low account sizes,” he said.
This investment creates a hedge for BlackRock in case millennials rely on apps and chatbots instead of advisors, while BlackRock keeps distributing its product through RIAs or otherwise.
The fintech expert added that the economics for these start-ups “don’t really work yet, but applying BlackRock’s scale could fix that. And that’s how you would justify the high investment price.”
Fink wrote in his annual letter that broad incorporation of behavioral tools, such as auto-enrollment, which automatically enrolls individuals in workplace retirement plans, and auto-escalation, which can help individuals enhance their savings by periodically increasing contribution levels, will be key to the company’s future.
BlackRock and Acorns said they will be focused on developing investing tools in collaboration to encourage the “savings and investing behaviors of the next generation of investors.”
Acorns is not the only microinvesting app. Another popular one is Stash, which lets investors open an account with $5.
More from ETF Spotlight:
Jack Bogle slams ETF investors (sort of)