Startups, custodians and broker-dealers have a new player in the robo movement — banks.
BBVA Compass, a bank with 672 branches across the United States, announced it is partnering with online investment platform FutureAdvisor to offer the bank's clients a digital investment service. Asset manager BlackRock acquired FutureAdvisor, which manages more than $700 million in assets, last summer.
The bank sees FutureAdvisor as an opportunity to connect with its digitally savvy clients, said Jorge Moller, executive vice president and digital segment director at BBVA Compass. Investors will be able to link external investment accounts, receive a plan for their portfolios, as well as have access to automatic portfolio rebalancing and tax-loss harvesting.
“We want to bring investment management services to bank clients,” Mr. Moller said. “We are looking for simple and convenient, highly-automated technology that can provide investment advice for our tech-savvy investors.”
FutureAdvisor has changed directions to be a
business-to-business model under BlackRock, from its origins as a direct-to-consumer service. Bo Lu, chief executive and co-founder of FutureAdvisor, said this allows the robo to continue helping its partners.
“This is actually a really big watershed moment, not just us as an entity but for the broader financial services industry as a whole,” Mr. Lu said.
Being able to strike such partnerships is bringing together “the best of both worlds” for clients, he added.
BBVA Compass isn't the first bank to offer a robo-adviser as a service for its clients. Capital One
introduced a hybrid robo-model in June where investors can build a portfolio of up to six exchange-traded funds. In December, US Bancorp said it was planning to offer its own robo in 2016, which would be available for investors with $100,000 in investable assets.
Bank of America Merrill Lynch has a
robo in the works too, expected next year.
Experts say business-to-business platforms will be the most popular model for robo-advisers.
“Robo-advisers focused solely on algorithmic asset management can leave the human element out of the solution, and that is an important component of the experience for many investors,” said Garrett Silver, head of investing products for Capital One Investing, in an email. “Our research shows investors, particularly younger investors, are open to a hybrid approach to investment management — and we're developing our solutions based on those needs.”
Though Citigroup has no robo of its own, its venture capital unit Citi Ventures
has investments in Betterment, currently the leading robo startup with more than $3 billion in assets under management.
It's inevitable for banks to jump into the world of robos, industry watchers say.
“We fully expect to see more firms make similar announcements to US Bancorp,” said Sean McDermott, an analyst at Corporate Insight.
“We think assets held within robo platforms will continue to grow,” he added.
Cerulli Associates Inc. projects robo-advice platform assets will reach
$489 billion in AUM by 2020, an increase of about 2,500%.
Smaller robos will feel the pressure, however. Another Cerulli report suggests each robo will need to grow on average
by 50% to 60% per year for the next six years to attain $35 billion in AUM, in order to remain competitive.
“It should be expected that everyone will want to attempt to build an automated investing service to offer their customers,” said Jon Stein, chief executive of Betterment, in an email. “The benefits of a platform, if built properly, are very clear. The big question is if many of these entities can do it right.”
Mr. Stein said consumers' trusts in banks are low, which is why they are driven to new platforms like Betterment.
On the other hand, banks have a lead-in with already established customer relationships, said Tomas Pueyo, vice president of growth at robo-adviser SigFig, said. The key for both startups and financial institutions to be successful in the robo market is through partnerships.
In this case, robo-advisers would create the platforms, and banks would present it to a large client base, he said. After all, it is costly and time-consuming for institutions to
build robos from scratch. JP Morgan Chase and Motif already struck up a partnership, for example, offering initial public offerings to investors through the robo-adviser.
“A few banks will build it, but the vast majority will partner because it is not an easy operation for a bank to start,” he said.
