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BlackRock, the world's largest fund manager, has acquired FutureAdvisor, a "robo-adviser" crafting automated portfolios for investors, in a deal that underscores how quickly the industry believes technology could reshape the market for financial advice.
San Francisco-based FutureAdvisor, which was founded in 2010 by two former Microsoft engineers, is one of a new generation of tech companies offering asset allocation advice to people who cannot afford — or do not feel comfortable visiting — a traditional broker.
Under the deal, which values FutureAdvisor at between $150 million and $200 million, the company will become part of BlackRock Solutions and its products will be sold to brokers and financial advisers, who in turn can offer them to their clients.
The deal comes amid considerable upheaval in the market for financial advice, including tougher regulation in the US and UK and evidence that millennials would prefer smartphone apps to conversations with an adviser.
Robo-advisers combine information about a customer's investment goals, income and tax situation to generate automated portfolios, charging lower fees than a broker or financial adviser.
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Last year, Fidelity began offering a product from Betterment, one of the most successful robo-advisers to date in terms of assets under management, to the 3,000 financial advisers who use its Fidelity Institutional Wealth Services division.
FutureAdvisor was founded by Microsoft colleagues Bo Lu and Jon Xu and developed at the Y Combinator start-up programme in San Francisco. Last year, it raised $15.5 million at a reported $75 million valuation; its venture capital backers include Sequoia and Canvas Venture Fund.
Frank Porcelli, head of BlackRock's US wealth advisory unit, said: "I have two 20-something boys and I don't know, in an age of texts and chat, that they are going to sit down with a financial adviser. They might prefer digital advice.
"Wherever the advice market goes, BlackRock wants to be there, and one thing we know is that five and 10 years from now, there will be more people using digital advice platforms than do today."
BlackRock Solutions is separate from the company's $4.7 trillion asset management business, and sells consulting services and software, including risk management systems, to other financial institutions.
FutureAdvisor will remain an "open architecture" platform, meaning it will be able to recommend more than just BlackRock funds, the company said.