In 2015, we saw a number of robo-advisors join with major financial services firms as well as a couple of big financial services firms launch their own robo-advisor service. So far, 2016 has started off with a large banking group, BBVA Compass, partnering with robo-pioneer FutureAdvisor to offer a digital platform to customers.
BBVA Compass, the Alabama subsidiary of a Spanish banking giant, recently launched its robo-advisor platform. FutureAdvisor itself is a major robo-advisor which was acquired in 2015 by giant money manager BlackRock (BLK).
Over the past year or so there has been a lot written in the financial press about different financial advisory distribution channels—brokerage firms, for example—and their efforts to kick start some type of online, automated portfolio management service. Are banks next to join the robo-fray?
BlackRock Plus BBVA Compass
When BlackRock acquired FutureAdvisor last year, the firm said it wanted to offer financial advisors across various channels access to a robo-advisor platform. The BBVA Compass deal is its first major arrangement of this type since the acquisition.
Quoted in a Forbes story about the deal, BBVA Compass Chairman and CEO Manolo Sánchez said, “FutureAdvisor gives us a way to connect more of our clients with convenient, affordable and trusted advice.” He added, “The ultimate goal here is to help our clients take greater control of their finances so they can build bright futures.”
For the bank, this is an opportunity to offer clients who are digitally savvy and technologically inclined the opportunity to invest via a low-cost ETF-driven platform. BBVA offers traditional human advisors as well who are available to serve as a backup for folks who want additional—or traditional—advisory help.
The banks’ robo-advisor option is likely to be a huge advantage for customers. Many traditional brokerage firms slot clients into their own proprietary products, which too often is costly and offers poor to middling performance. JP Morgan Chase was recently fined more than $300 million by the SEC over failing to disclose its preference of its own products for client investment.
FutureAdvisor has an advisory fee of 50 basis points and implements investment recommendations via low-cost ETFs. It also offers a more holistic approach to investing that differs from most other robos.
Other Bank Robo-Models
According to Investment News, many experts think that business-to-business robo-advisor models are the wave of the future vs. more traditional business-to-consumer models made popular by the likes of Betterment and Wealthfront. Reportedly, Bank of America (BAC) is building a robo-advisor platform for its Merrill Lynch subsidiary; Capital One recently introduced a hybrid robo-advisor model that allows clients to build a portfolio from six available ETFs. U.S. Bank has indicated that it will launch a robo-advisor service for clients with at least $100,000 in assets sometime this year.
Banks offering such automated services makes sense—many banks already offer an investment advisory service, mostly via a broker-dealer. Offering the services of a robo-advisor gives bank customers one less reason to go elsewhere; the automated investing advisory solution will help banks compete with financial services firms like Fidelity and Charles Schwab (SCHW), which offer a wider array of services. Schwab recently kicked off its Schwab’s Intelligent Portfolios, which according to reports saw growth of roughly 37% in the third quarter of 2015. (Some of that growth, of course, is due to existing Schwab clients moving on over to the automated platform.)
Giving Banks a Leg Up
Banks have one huge advantage vs. financial services firms: they have a large customer base already in place. A robo-advisor is another avenue in which to provide investment services to this demographic, especially among those with assets at a level that wouldn’t qualify for high-end, high-touch wealth management services. A bank-branded robo would be a good way to cultivate a relationship with young, emerging investors—those in the Millennial and Gen-X space—and court them as their investing and banking needs evolve and increase as they move through life.
Moreover, robo-advisors are a natural extension of the technological prowess that banks aiming to be relevant among today’s increasingly tech-savvy customers must possess.
The Bottom Line
As the lines between providers of financial services continues to blur, it is only logical that banks develop some type of robo-advisor platform as a way to keep existing customers happy and as a way to fish for new prospects. Whether banks build such a service from scratch or choose to partner with an established brand doesn’t really matter; it’s all about offering solid, unbiased advice about portfolio management and investing strategies in a way that people can feel comfortable with.
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