Millennials are expected to have
more than $11 trillion in financial assets in the next 12 years. Who will help
them manage that money as they get older?
The battle between fintech
startups and traditional wealth-management firms promises to be a fierce one.
Many younger investors are loyal to the fintech startups, which are trying to
expand their offerings. The traditional firms, meanwhile, have polished their
once-dreary websites and rolled out low-cost options in a bid to attract
“The problem that some of the
fintechs will face is that while they were with you when you didn’t have much
money, they gave you a great experience and didn’t make you feel like you were
less than a full-fledged investor, does that loyalty carry over when your
financial needs become more complex?” says Raja Bose, a partner at consulting
firm Genpact .
But established wealth managers
should take little comfort in whatever growing pains fintech firms might
encounter. In many ways, this is the newer companies’ race to lose, some
Fintechs, which often started
with one product, are now offering many. For instance, Acorns, a platform that
helps its 3.7 million users save by investing spare change into exchange-traded
funds, has in the past year launched an individual retirement account product
called Acorns Later, as well as a debit card. It’s also exploring
impact-investing products, which are geared toward social and environmental
goals, an area thought to be popular among millennials.
“You have a lifelong relationship” with
someone if you can help them do something they thought was otherwise
impossible, like saving money, says Noah Kerner, chief executive of Acorns.
Fund giant BlackRock BLK +0.12% recently invested $50 million in Acorns to help
it expand further.
Betterment, a robo-advisory
pioneer, is also branching out. Last year it launched a premium product for
those who have managed to accumulate a significant amount of money—at least
$100,000 to keep in a Betterment account. It includes unlimited access to human
advisers and carries an annual fee of 0.4% of the account balance. That
compares to its digital service, which has no minimum and a 0.25% fee.
“The industry’s case is: ‘Oh
yeah, when [millennials] grow up and have money they’ll come running’ ” to the
old-line wealth-management giants, says Matt Harris, a managing director at
Bain Capital Ventures. Bain was an early investor in Acorns. “I don’t think
that’s a safe bet—not even remotely.”
One advantage the challengers
have is that they are digital-first by their nature. That positions them well
with millennials, who tend to have either grown up with a digital mind-set or
become more digitally dependent than many older investors. Millennial investors
“are far more likely to feel that some of the most cutting-edge technology
tools are basic requirements of a service offering, rather than a
‘nice-to-have,’ ” according to a 2017 report on millennials and money by
But the old guard are hardly
pushovers. A few years ago, the conversation about incumbents vs. challengers
was about apps and interfaces. Fintechs had slicker offerings. But Genpact’s
Mr. Bose says incumbents have largely closed that gap.
For instance, Merrill Lynch and
Morgan Stanley MS +0.11% have launched their own robo advisers with interfaces
they believe rival those of the newcomers. They are, however, eyeing customers
who already have a few thousand dollars to invest. Merrill Lynch’s Merrill Edge
Guided Investing and Morgan Stanley’s Access Investing both have a $5,000
minimum. Betterment has no minimum on its digital account and Wealthfront’s is
Merrill and Morgan Stanley also
charge slightly more in fees, which they say is justified by the combination of
human and digital advice available to their robo clients. “As people age, their
lives get more complex—there are trust and tax and estate issues, mortgages and
inheritance,” says Naureen Hassan, chief digital officer at Morgan Stanley
Wealth Management. “That’s where we see people wanting the help of a financial
adviser to help them talk through decisions and make decisions in a
Millennial customers have “an
appreciation for both the high tech and the high touch,” says David Poole, head
of advisory, client services and digital capabilities for Merrill Edge, the
online side of Bank of America Merrill Lynch’s brokerage business.
Some investors—young and
old—prefer to act as their own financial adviser. These market junkies have
long used discount brokers like TD Ameritrade or Charles Schwab to save on
commissions. Millennials often play the market with the app Robinhood, which
doesn’t charge any commissions. Now JPMorgan Chase plans to launch an app that
will offer 100 free stock trades to account holders at its retail bank in the
first year. (Merrill Lynch also offers Bank of America account holders free
trades on Merrill Edge, if they meet balance requirements.)
One way incumbents and newcomers
could proceed is by joining forces, says Mr. Bose. Goldman Sachs approach could
provide a road map. Although the firm has a long history of serving the
wealthy, Marcus by Goldman Sachs, the company’s online consumer bank, is eyeing
the same types of customers as the fintechs. Its consumer-loan business, which
people often use to consolidate credit-card debt, has no origination fees and
low rates, and lets users customize things like the payment date. The minimum
size for its high-yielding savings accounts is $1.
Earlier this year Marcus bought
Clarity Money, an app that lets consumers view all of their financial data in
one place, keep better tabs on their spending and see tailored offers for
various financial products. One of Clarity’s partners is Acorns.
The partnership with Acorns was a
draw for Marcus, says Omer Ismail, chief commercial officer at Marcus.
Marcus doesn’t currently offer
investing tools, but the company is exploring that possibility, Mr. Ismail
says. Goldman is leaning on the company’s legacy, Mr. Ismail says, but it is
also looking to build trust the way fintechs did it—by addressing specific
challenges people face in figuring out their finances.
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