Banks are watching wealthy clients flirt with robo-advisers, and that’s one reason the lenders are racing to release their own versions of the automated investing technology this year, according to a consultant.
Millennials and small investors aren’t the only ones using robo-advisers, a group that includes pioneers Wealthfront Inc. and Betterment LLC and services provided by mutual-fund giants, said Kendra Thompson, an Accenture Plc managing director. At Charles Schwab Corp., about 15 percent of those in automated portfolios have at least $1 million at the company.
“It’s real money moving,” Thompson said in an interview. “You’re seeing experimentation from people with much larger portfolios, where they’re taking a portion of their money and putting them in these offerings to try them out.”
Traditional brokerages including Morgan Stanley, Bank of America Corp. and Wells Fargo & Co. are under pressure to justify the fees they charge as the low-cost services gain acceptance. The banks, which collectively employ about 46,000 human advisers, will respond by developing tools based on artificial intelligence for their employees, as well as self-service channels for customers, Thompson said.
“Now that they’re starting to see the money move, it’s not taking very long for them to connect the dots and say, ‘Whatever I offer for a fee better be better than what they’re offering for almost nothing,”’ Thompson said. Technology will “make advisers look smarter, better, stronger and more on top of the ball.”
Robo-advisers, which use computer programs to provide investment advice online, typically charge less than half the fees of traditional brokerages, which cost at least 1 percent of assets under management. The newer services will surge, managing as much as $2.2 trillion by 2020, according to consulting firm A.T. Kearney.
More than half of Betterment’s $3.3 billion of assets under management comes from people with more than $100,000 at the firm, according to spokeswoman Arielle Sobel. Wealthfront has more than a third of its almost $3 billion in assets in accounts requiring at least $100,000, said spokeswoman Kate Wauck. Schwab, one of the first established investment firms to produce an automated product, attracted $5.3 billion to its offering in its first nine months, according to spokesman Michael Cianfrocca.
Customers want both the slick technology and the ability to speak to a person, especially in volatile markets like now, Jay Welker, president of Wells Fargo’s private bank, said in an interview.
“Robo is a positive disruptor,” Welker said. “We think of robo in terms of serving multi-generational families.”