Digital investment services aren’t
just reshaping wealth management, they’re trimming it down.
Robo advisory
clients can open a discretionary account in less than five minutes and move
money into new accounts in under five clicks, according to Jared Shaw,
consultant at Ernst & Young. By making it easier for clients to sign up,
firms can now onboard more clients faster and operate at scale with much less
staff.
“It’s rapidly cutting out
the fat to get an account opened in a compliant manner,” Shaw told a room of
roughly 100 advisors at the Schwab Impact 2018 conference. For example, a
single staffer at an online robo advisor can support 10,000 clients, he said.
In fact, 1 in 3 consumers use fintech solutions because it is easy to open an
account, according to the EY FinTech Adoption Index.
Many digital-first
investment firms have shrunk the number of forms clients need to fill out to
get onboard — from 65 fields at a wirehouse to under 25. One of the biggest
draws to developing timesaving techniques is how it can appeal to millennial
clients, Shaw said. “The time they get to spend on their financial life is just
not as much as someone later in their career,” he said.
That’s not to say
younger clients don’t want to work with human advisors. Shaw cited a survey
from the fintech provider Broadridge that found two thirds of millennial
respondents said face-to-face interaction is necessary for earning and build
trust. “That’s something that’s not going to go away anytime soon,” Shaw says.
Incumbents are also
looking to offer digital tools to clients. For example, HSBC
partnered with the robo provider Marstone this month, becoming the
latest bank to roll out a digital offering. Fifth Third Bancorp’s securities
unit teamed
up with Fidelity to offer automated advice in June. Others have
launched mobile-only units, including BankMobile,
a division of Customers Bancorp, and MemoryBank,
a unit of Republic Bank & Trust,
“Fintech is not
just startups,” said Matthew Hatch, partner with Ernst & Young. “It’s led
by a lot of startups that gain all the attention, but also the incumbent
financial institutions — and in a lot of cases, partnerships that are beginning
to happen.”
Robo advice has
fueled an
explosion of new discretionary accounts that topped 27 million in
2017, up from 15 million in 2013, according to research from Aite Group. Assets
on digital platforms are expected to top $1.5 trillion by 2021.
Some independent
robos added staff to provide advice to digital-first clients. Personal
Capital opened new offices in Atlanta with the expressed intent of
bolstering its advisor base. After establishing its first hub in tech-savvy
Denver in 2013, the San Carlos, California-based firm — with more than $8
billion in client assets — branched out into other hotspots including Chicago,
Dallas and New York.
While larger firms
are making headlines, the smaller ones are touting significant funding rounds,
Hatch says.
In the first half
of 2018, global fintech investing topped $39 billion in 800 different
investments, according to Hatch. Total investments in U.S. companies hit $8.8
billion in the second quarter of 2018, up from just $2.8 billion over the
year-ago period, according to The
Pulse of Fintech 2018 study by KPMG.
The big winners
included a $363 million Series D investment in the personal finance firm
Robinhood and a $250 million Series E investment in the business network
Tradeshift, according to the study.
“The amount of
funding coming into this space is just staggering,” Hatch says.
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