Covestor Looks to Disrupt Investment Industry with “Mirror” Marketplace

3/26/12Follow @gthuang

If you’ve got $50K or $500K to invest with a financial advisor, you might want to check out Covestor. And well, even if you don’t, the New York-based company tells a pretty interesting story of one effort to make the field of money management more transparent.

Covestor has built an online marketplace for consumers to shop around for money managers, the same way they might for car insurance. So, instead of just investing your money with a big Wall Street shop, say, you can find and follow smaller asset managers, individual traders, and management firms, and check out their portfolios. If you find one whose performance you like, you can “covest” with them—meaning Covestor will set up a “mirroring” account that recreates that money manager’s portfolio, trade for trade.

The goal, of course, is to make more money for investors and managers—and for Covestor, which splits management fees with the 135 (and counting) money managers in its network.

“We let you find and get access to managers you normally wouldn’t get access to if you didn’t have a million dollars,” says Covestor CEO Asheesh Advani, a Boston-area entrepreneur and finance expert (see photo above).

Advani calls it “democratization of access to active money management.” What’s more, he says, Covestor users can compare the performance of money managers in the marketplace and can switch managers whenever they want, with just a click of a mouse. In return, managers in Covestor’s network get broader exposure to potential clients and the financial media (more on that below).

The company didn’t always work this way. Covestor started in the U.K. in 2006, and for the first few years, the firm ran a free service whereby anyone could follow any other investor’s trades. The key technology, what Advani calls a “trade replication engine,” was in place, but the company focused on getting traction before worrying too much about making money. By 2010, Covestor had about 30,000 users and entered its next phase of growth.

The startup is venture-backed to the tune of about $11 million by Union Square Ventures, Spark Capital, Amadeus Capital Partners, and other investors. Its 20-some employees are spread between New York, Boston, London, and Israel. Advani came in as CEO last summer, through his relationship with Spark’s Todd Dagres, a director of the company.

Advani had previously founded CircleLending, a peer-to-peer loan service, in the early 2000s. That Boston-area firm became Virgin Money USA when Richard Branson’s Virgin Group acquired a majority stake. From there, Advani went on to serve as a general manager for Thomson Reuters, where he led teams in new media markets and financial advisor products.

With his background in financial services, new media, and IT, Advani has been working to reposition Covestor as a marketplace and media company that brings transparency to the economics of investing. “We have something no other money management firm does—we’re a platform and a marketplace,” he says.

To that end, Covestor also contributes articles and content—on topics like what its money managers are investing in—to The Wall Street Journal’s MarketWatch, Benzinga, Outbrain, and Yahoo Finance, says Advani. The company acts as a sort of social-media partner for its managers and investment advisors by marketing their brands through blogs, events, and other channels, he says.

Covestor is coming off a free, two-day online conference that it hosted last week, called Next Invest. The goal was to capture what some of the biggest financial conferences do—bringing in high-profile speakers and convening top investors—but also make it more accessible as the “industry’s first virtual conference,” Advani says.

All of this fits with the idea that Covestor is trying to disrupt the broader investment industry with an expanding network of managers and media outlets. But it’s still very early in that game, and Advani is clearly focused on the more immediate challenges that lie ahead.

“We’re growing,” he says. “I’m raising a round.”

Gregory T. Huang is Xconomy's Deputy Editor, National IT Editor, and the Editor of Xconomy Boston. You can e-mail him at gthuang@xconomy.com. Follow @gthuang

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