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Robo-advisor Hedgeable closes regulated investment management business

Hedgeable has $80 million in assets under management and 1,700 clients, but the robo-advisor decides it is time to restructure.

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“Hedgeable is restructuring, and we have decided to discontinue our regulated investment management business effective August 9, 2018… On that date, all access to the existing Hedgeable investment management portal will cease to be operational,” the Hedgeable website notes.

Launched in 2010, Hedgeable is one of the earliest robo-advisors. Unlike Betterment and Wealthfront early adopters, Hedgeable took a “hedge-fund” like approach to investing. In contrast with the passive, index fund ETF investing strategy, Hedgeable used alternative investments like precious metals, currencies and Bitcoin as well as shorting strategies in their investing recipe. These hedge-fund tactics also included investing in typical fixed income and growth stocks.

On July 9, 2018, Hedgeable decided to close its doors to new investors and ask existing investors to transfer their funds out of the company. Folio Investments, the firm’s custodian, is making the transition smooth for existing Hedgeable clientele. Existing customers receive free self-directed access to a Folio Investments, Inc. account for the remainder of 2018, with no transfer or management fees.

Despite $80 million in assets under management and 1,700 clients, Hedgeable decided it was time to change focus.

According to co-founders, Michael and Matthew Kane, the company is not insolvent and will announce a new direction for Hedgeable going forward.

robo-advisor

Hedgeable promises to announce its future plans as it shifts its business focus. (Source)

What does Hedgeable’s closing mean for the robo-advisory industry?

As we’ve written in various articles that address the future of robo-advisors, industry consolidation and fallout is to be expected. As with any competitive environment, there are winners and losers, and every platform will not survive.

The Hedgeable closing falls on the heels of the recent demise of WorthFM, a women-oriented robo-advisor.

The robo-advisory industry is getting crowded, with new platforms rapidly emerging. As Hedgeable has shown, all robo-advisors won’t survive.

With free robo-advisors and other automated investment advisors offing low-fee robo-advisory platforms, it’s tough to compete.

The cost of client acquisition is great and to compete with low or no fee platforms, huge AUM and a large client base is required for long-term profitability.

Additionally, when you’re competing against deep-pocket investment companies such as Schwab Intelligent Portfolios, FidelityGo, and Vanguard Personal Advisor Services it’s tough to survive.

Where should investors seeking active management go?

Although Hedgeable was the first actively managed robo-advisor, they are not the only player in the game. Despite the preponderance of passive, ETF investing robo’s there is a group of robo advisors that cater to those who desire an active management robo-advisory approach.

Qplum, co-run by a former hedge fund manager, Mansi Singhal, is Hedgeable’s closest competitor. You can invest in this actively managed platform through the Qplum website or their relationship with interactive brokers.

Qplum employs active management and strives to temper risk. Qplum developed portfolios that target specific risk levels such as the Fairway portfolio that targets 3 percent risk and is geared towards conservative investors. The Sunflower portfolio targets a 15 percent risk and is more appropriate for aggressive investors. Stocks miriskiere risky today than yesterday, but the Qplum portfolio remains at the same risk level.

Other actively managed robo-advisors include the T.Rowe Price ActivePlus Portfolios, Alpha Architect, and BuildingBenjamins. Additionally, Interactive Brokers took over Covestor and offers a multitude of managed portfolio options.

Personal Capital Advisors is another choice for Hedgeable clients. This digital advisor is a balance between the human touch and automated investment advisor. With a segment weighted investment method, as opposed to the typical market cap weighted style, their hands on advisors help investors manage risk and reach their investment goals for a fee lower than most human financial planners.

Hedgeable wrap up

Hedgeable led the way for a new type of investing—an active management robo-advisor for a reasonable fee. The Hedgeable closing shows how difficult it is to survive in the competitive robo-advisory sphere. They offered an early introduction to this constantly changing digital investment world.

 

DISCLAIMER: This article expresses my own ideas and opinions. Any information I have shared are from sources that I believe to be reliable and accurate. I did not receive any financial compensation in writing this post, nor do I own any shares in any company I’ve mentioned. I encourage any reader to do their own diligent research first before making any investment decisions.

Barbara Friedberg, MBA, MS is a former investment portfolio manager, author of Personal Finance; An Encyclopedia of Modern Money Management and How to Get Rich; Without Winning the Lottery. Friedberg is a former university Finance and Investments instructor, and publisher of BarbaraFriedbergPersonalFinance.com and RoboAdvisorPros.com. Her work has been featured in U.S. News & World Report, Yahoo! Finance, GoBankingRates, The Huffington Post and many more publications.

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