JPMorgan Winds Down Robo-Advisor, Cites Profitability Challenges


Robo-advisors offer investors easy access to professionally managed portfolios. Operating a robo-advisor as a profitable business, well, that’s far from easy. Just ask

JPMorgan

Chase.

JPMorgan plans to discontinue its purely digital robo-advisor, J.P. Morgan Automated Investing, in the second quarter of 2024, four years after it launched. It ceased taking on new customers over the weekend and will transfer existing clients to its self-directed online investing brokerage offering. The decision does not affect its hybrid robo-advisor, which pairs human financial advisors with automated investing.

The bank pointed to the challenges of achieving scale in the digital advice business. 

“The robo-investing business did not take off in the wealth industry as expected,” a spokeswoman said in a statement. “It hasn’t scaled or become profitable for many, including us. We believe our self-directed and advisor-led platforms offer great alternatives to our clients and are focusing our resources there.”

JPMorgan’s move is the latest shake-up in the digital advice sector. Robo-advisors were launched in the wake of the financial crisis. They offered investors professionally managed portfolios at a fraction of the cost of a traditional financial advisor. Most robos charge an annual fee of about 0.25% whereas traditional advisors typically charge 1%. Robos also have lower or no minimums.

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But achieving profitability has been challenging and some robo-advisors closed after being unable to gather significant assets under management. Of the original robo-advisors, only Betterment and Wealthfront survive today. 

The sector is now dominated by traditional wealth and asset management companies, and hybrid offerings have become ascendant. For example, Vanguard’s hybrid robo-advisor had $271 billion as of June 30 while its purely digital robo-advisor had $13 billion.

By comparison, Wealthfront announced last month that its assets topped $50 billion for the first time. Wealthfront has said it is profitable. The Palo Alto, Calif.-based company has added additional products and services, but it has stuck with its digital-only approach.

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Betterment has expanded into retirement plans and custody of assets on behalf of registered investment advisory firms.

When robo-advisors first launched, there was a misplaced fear that they would replace human advisors. That never panned out, in part because standalone robos struggled to demonstrate sustainable profitability, says Nikhil Sharma, head of digital wealth solutions at Capco, a global management and technology consulting firm. “Instead, the true strength of digital experiences, driven by technology, lies in sparking customer interest (primarily among the mass affluent) and seamlessly connecting them with advisors, rather than solely executing automated rebalancing,” he says.

Although JPMorgan is closing its digital robo-advisor, the bank continues to build its wealth management business, which includes an online brokerage, bank-based advisors, and a brokerage unit catering to wealthy clients. JPMorgan also operates a huge private bank.

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Its robo-advisor was aimed at customers with smaller sums to invest. J.P. Morgan Automated Investing had a $500 minimum for new accounts and charged an annual fee of 0.35%. JPMorgan’s hybrid robo-advisor, J.P. Morgan Personal Advisors, launched in 2022. Its fees range 0.4% to 0.6%, depending on asset level, and has a $25,000 minimum.

Write to Andrew Welsch at andrew.welsch@barrons.com



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