as fidelity enters robo-advising, a boston startup pivots away

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Page 1: As Fidelity enters robo-advising, a Boston startup pivots away

As Fidelity enters robo-advising, a Boston startup pivots away Boston Business Journal – Mar 31, 2016, 6:48am EDT By Greg Ryan AlphaPack drew a good deal of attention upon entering Boston’s financial services technology, or fintech, scene in 2014. Its automated investment-advice technology, developed by two one-time employees of Harvard’s endowment arm, won AlphaPack spots in both of the city’s incubators for fintech startups, Fintech Sandbox and the DCU Center of Excellence in Financial Services. After developing and testing a prototype last summer, however, AlphaPack’s founders didn’t see enough money in robo-advising, one of the most popular areas of fintech, to make it worthwhile. Robo-adviser technology uses algorithms to provide investment advice without the aid and expense of a human adviser. A major part of the problem has been the entrance of investment giants such as Vanguard and Charles Schwab (NYSE: SCHW) into the robo-advising space, AlphaPack CEO Ravi Balasubramanian said. On Wednesday, Boston’s own Fidelity Investments started a pilot program for the retail-investor robo-advising platform it’s developing, Fidelity Go. The company is seeking to enlist 500 customers for the pilot, with the goal of launching the product nationwide in the second half of 2016. Fidelity and similar companies already have massive customer bases and assets under management, making it that much tougher for startups to compete, according to Balasubramanian. Moreover, the projected costs to attract an investor to AlphaPack's platform were incredibly high relative to the lifetime value of that customer, he said. “From an economic model, it just didn’t make sense,” Balasubramanian said. As a result, AlphaPack decided last year to revamp its technology to target not retail investors, but the sort of local and regional banks and credit unions that dot Massachusetts. The institutions want to improve their digital platforms for customers, but do not have the in-house funds or personnel to do so. Many customers of those community institutions aren’t looking to hit the jackpot in the stock market. Instead, they’re aiming to save enough money for something like the down payment on a house, Balasubramanian said. AlphaPack is repurposing its technology to help those customers refinance a loan at a lower rate, for instance, or to suggest a bank product or service, so they can meet their financial goals. The plan was solid enough to land AlphaPack a spot in yet another incubator, Startupbootcamp Fintech New York. (Balasubramanian and co-founder Skye Isard will split their time between Boston and New York while their business is in the accelerator later this year.) Balasubramanian isn’t the only one who sees shrinking opportunities in robo-advising for startups. The leaders of both the DCU incubator and Startupbootcamp Fintech New York view the space as crowded. “I happen to personally like the niche (Ravi is) going for, and I’m happy to see them explore things other than automated robo-investing,” said Jesse Podell, managing director of the Startupbootcamp incubator.

Page 2: As Fidelity enters robo-advising, a Boston startup pivots away

The current startup class at the DCU Center of Excellence does not include any robo-advisers, though previous classes have featured them, according to David Araujo, director of the DCU center. “We’ve seen a lot of them over the past couple of years. From my perspective, it’s very saturated, but I also haven’t quite seen anyone solve the problem perfectly. I think there’s still a lot of room for innovation,” he said. Fidelity hopes it has found the solution to that problem with Go, which until Wednesday had only been tested with Fidelity employees. The company hopes that by leveraging the types of advantages that Balasubramanian pointed out — ultimately, it wants to incorporate Go into all of its planning and guidance tools, and allow users of a Fidelity-affiliated Visa credit card to apply their cash back to Go — it will be able to compete with the likes of Schwab and Vanguard, which have more established robo-advising services. Fidelity is aiming to woo investors between the ages of 25 and 45 with the platform. “It gives them another option to engage with Fidelity, but maybe with more digital interactions and a lower premium for managed money,” Fidelity spokesman Robert Beauregard said. Go has a $5,000 investment minimum. AlphaPack, meanwhile, is looking to test out its repurposed technology at Startupbootcamp this summer, which includes Rabobank and Bank of Scotland as sponsors. If all goes well, Balasubramanian hopes to execute the three-employee AlphaPack’s first round of funding. To date, the startup has been self-funded, while collecting some revenue from work it’s done for an Indian brokerage company. "It was a good move for them," Startupbootcamp's Podell said of AlphaPack's strategic shift. "The beautiful thing about accelerators is we help people pivot, and we explore the best way to find a market fit. At this point it's very early, and we don't know (which institutions Balasubramanian) is going to pilot with, but we think that the program is an outstanding opportunity to do so."