BLK BlackRock Inc

By Anne Tergesen 

A big asset manager is embracing "robo" finance advice.

BlackRock Inc. said Wednesday it is purchasing FutureAdvisor, a privately held pioneer in the fast-growing business of using automated computer models to build and manage investment portfolios.

The terms of the deal, which is expected to close in the fourth quarter, weren't disclosed. BlackRock said the financial effect isn't material.

With over $600 million in assets under management, FutureAdvisor will continue to serve both existing and new individual clients from its offices in San Francisco. But BlackRock is most interested in selling FutureAdvisor's automated advisory services to the banks, securities firms and insurance companies that are customers of BlackRock Solutions. That unit, which accounted for $161 million of BlackRock's $2.9 billion in revenue in the second quarter, sells a system that allows financial institutions to place trades and assess how those trades will affect their portfolios' risk profiles, among other features.

The service will be branded FutureAdvisor Powered by BlackRock Solutions.

"FutureAdvisor as a website providing digital advice will continue to be there," said Robert Goldstein, chief operating officer and global head of BlackRock Solutions, in an interview. But as BlackRock looks "to grow the company, our focus is going to be on working with our partners."

"A lot of our interest was sparked by our clients coming to us" and asking for help serving investors who haven't amassed enough in savings to meet the investment minimums required to work with a financial adviser, Mr. Goldstein said.

When an individual investor goes to FutureAdvisor's website and answers a questionnaire that, among other things, asks when he or she plans to retire, the service recommends a portfolio of index funds. For a 0.5% annual fee, the firm makes the recommended trades and its computer model automatically monitors and rebalances the portfolio. Do-it-yourself investors can get investment recommendations alone free.

Mr. Goldstein said securities firms have expressed interest in offering the service to investors with smaller accounts that they serve through a centralized office staffed by telephone representatives rather than through individual advisers. The brokerages have also expressed interest in using such a platform "to enable financial advisers to be more efficient about handling mass-affluent" clients, typically viewed as those with less than $1 million in assets, he adds.

FutureAdvisor will continue to use exchange-traded funds from BlackRock as well as investments from other companies. Clients may decide to customize the product, for example by using their own asset-allocation models, said Mr. Goldstein.

The deal follows recent acquisitions of robo-advisory firms by companies including Northwestern Mutual Life Insurance Co. In March, Northwestern bought privately held LearnVest Inc. of New York for an undisclosed sum. The goal was to secure LearnVest's planning tools for Northwestern's agents.

FutureAdvisor ranks fifth in assets under management among 12 robo-adviser startups tracked by Boston research firm Aite Group LLC. At the top of the list are Betterment LLC and Wealthfront Inc., each of which oversees about $2.6 billion for investors.

This list doesn't include Vanguard Group and Charles Schwab Corp., which recently launched services that provide online advice coupled with access to individual financial advisers. Vanguard had $22 billion in assets in that service at the end of June, according to the firm.

Sophie Schmitt, a senior analyst at Aite, projects assets managed by robo-advisers and traditional firms with online offerings will reach $50 billion to $60 billion this year, up from $29 billion now and $16 billion at the end of 2014. That is still a small piece of the $19 trillion U.S. wealth advisers manage, according to Aite.

Write to Anne Tergesen at anne.tergesen@wsj.com

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(END) Dow Jones Newswires

August 26, 2015 09:14 ET (13:14 GMT)

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