Robo advisers' next offering: Loans
As seen in Financial Planning and republished in On Wall Street, Bank Investment Consultant, and American Banker.
After claiming retail customers, institutional clients and even 401(k) plans, robo advisers could expand their reach into peer-to-peer lending.
Robo adviser Hedgeable says it expects to roll out a peer-to-peer lending product by the end of this year. It will be the first robo wealth manager to do so, according to the company.
Michael Kane, co-founder of Hedgeable, says an official launch date hasn’t been set. “We are going to be offering loans as an asset class,” he says, giving customers the option to “invest in loans directly through a third-party.” The lending partner is yet to be announced.
Hedgeable sees the peer-to-peer portfolio option, which will offer business and personal loans, as an alternative to fixed income investments that are traditionally offered through ETFs, he says.
Kane says the company also considered offering peer-to-peer student loans, but decided against it for now, opting for “more mature markets” with clearer performance history.
While at least one robo investing service, LendingRobot, also offers the opportunity to invest in peer-to-peer loans, its product lineup doesn’t extend beyond lending. Another digital platform, NSR Invest, allows advisers to invest in P2P loans, and is integrated with Orion Advisor Services.
CLIENT SEGMENT CONCERNS
The expected launch, which has the potential to bridge independent automated wealth managers and peer-to-peer lending, is not without its skeptics.
“My first thought when witnessing an online investment service branching out into peer-to-peer lending is that of concern,” says Bill Winterberg, industry observer and founder of FPPad.com. “One client segment wants low cost automated investing, [while] a completely different segment wants financing from non-traditional lending sources."
Still, it's an opportunity for young digital firms facing competition from incumbents and high client acquisition costs to potentially create a new revenue stream, says industry consultant Tim Welsh.
"Without a doubt, the great fintech ecosystem goes far beyond the investment side," he says.
The retail P2P lending market in the U.S. alone is estimated to be over $3 trillion, according to research and valuations of P2P lenders such as Lending Club.
According to the Hedgeable's last ADV, the digital advice provider manages $50.5 million in assets and counts a total of 1,100 accounts. Betterment, the leading independent robo platform, recently announced it is managing over $5 billion in AUM.
Hedgeable is no stranger to experimentation, having pioneered the inclusion of bitcoins in customer portfolios along with a venture capital investment option. The potential peer-to-peer lending option would be one more option for its customers, as the company seeks to build new financial “ecosystems” for investors.
Welsh says the effort is another example of how fast the fintech space is evolving, noting Amazon's recent partnership with Wells Fargo to offer student loans to its Amazon Prime customers.
"The scary thing for everyone is that Amazon is now offering student loans," Welsh says. "How far is it for Amazon to launch a robo?"