Creating a sustainable digital wealth management platform

Banks and investment firms seek robo investing niche

Bank brokerages and investment firms must find their digital wealth niche to win a share of robo investing customers.


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As demand for robo advising and robo investing rises, many bank brokerages and investment firms recognise that they may have ‘missed the boat’ on digital wealth management. Yet our experience suggests it’s not too late for banks and investment managers to create a viable and compelling value proposition in the robo advisor market.

Robo investing democratises access for small investors

The massive growth in digital wealth management is being driven in part by the shift in investment patterns – away from actively managed portfolios and towards investment vehicles such as passive exchange traded funds portfolios (ETFs).

Interest in digital advice – often known as ‘robo investing’ – is also being catalysed by growth in demand for investment services from less-wealthy, retail investors attracted by low fees and low minimum balances. And robo advisors offer innovative investing alternatives, such as digital pioneer Folio Investing, a self-clearing broker dealer with a fractional share platform that is democratising investing by de-coupling the price of any security – stock or ETF – by whatever amount the investor can or is willing to make.

The important point is that digital advice services are growing demand for investment solutions rather than simply cannibalising existing assets under management from managed account programmes. Small investors want to invest but far too few have access to investment advice given the high initial minimums for many managed account programmes.

Robo advising competition heats up

Not surprisingly, investment houses, bank brokerages and wealth management advisors have started to rethink their approach to digital wealth management.

The problem is that – while the vast majority of wealth managers and brokerages opted to take a ‘wait and see’ approach to digital wealth management – four key players invested to create digital capabilities and they now dominate the existing market.

Digital advice

Bank brokerages and investment firms can catch up

Fortunately, our survey indicates that it’s not too late to enter the digital advice space since awareness is still fairly low, and most robo investing solutions target existing investment clients, leaving a massive market of lower-wealth, small investors.

Our experience and our survey data suggest that there are still significant opportunities for banks, investment houses and wealth managers to create a compelling digital model. Bank brokerages could offer account aggregation services that provide a unified view of customer banking, trust and brokerage accounts across multiple custodians through a single sign-on. Almost three- quarters of our survey respondents said this would be highly attractive.

Bank brokerages can also offering auto investing services that provide clients the option to regularly transfer a set amount from their checking or savings accounts to their investment portfolio and automatically allocate funds across all holdings. And many banking clients are interested in working with a financial advisor to supplement digital solutions.

Ultimately, customers are open to a new value proposition that makes investing easier and our survey suggests they are actually willing to pay more fees in exchange for the convenience and value of a bundled service offering.

Banks and investment firms must understand retail investors

While investment firms and bank brokerages need to move quickly to capture and retain customers, there is a wide variety of potential business models and services to consider.

We often help banking and investment house executives start the process by discovering what their clients want and what they will pay for it. They can then develop a strategy and service offering that recognises their current capabilities and culture, to deliver the right mix of services at the right cost.

However, with competition for investment-related Financial Technology (FinTech) running high and companies in this area achieving impressive valuations for their technology, most bank brokerages and investment houses will likely find it difficult or cost prohibitive to simply acquire the technologies and capabilities they need.

As such, many are now focusing on building smart partnerships with Fintech and other potential partners to develop robo investing solutions. Understanding what partners are available and what ‘white-label’ arrangements can be created will be key to assessing the best approach to develop digital wealth management services.

Ultimately, we believe that the opportunity for banks and investment houses is ripe if they move now to capture their share of the market. Those that do can look forward to a more diversified client base, more loyal clients and more stable fees.

Frontiers in Finance – May 2016

The focus of this issue of Frontiers in Finance is having the courage to change.

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Frontiers in Finance

The focus of the latest issue of Frontiers in Finance is on having the courage to change.

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