No lumber, no slumber: Canadian robo steps up

No lumber, no slumber: Canadian robo steps up

As I point out in my recent report on robo advisors in Canada, price points for digital advisors are on the high side, even for the lumbering Canadian advice market. Especially as these robos are not known for standout service, as other bloggers have noted.

So should it be a surprise that Invesco Canada has developed plans to roll out Jemstep in Canada, the digital advice service the parent company acquired in January 2016?

Opportunity beckons

The truth is that the roll out has relatively little to do with the small Canadian market, and everything to do with the US, and eventually, the UK, markets. Invesco has been digesting Jemstep for more than a year now, quietly making Jemstep’s robust aggregation and client servicing functions available to those advisors who want them.

Fine tuning is fine, but at some point, it’s time to go big. With prices for robo tech on the wane, there is pressure on Invesco top brass to make something of this acquisition. Indeed, Peter Intragli, CEO of Invesco Canada and head of North American distribution, signaled this launch a while back. It is also worth noting that stand alone Canadian robo WealthSimple is taking a similar tack to Invesco, launching in the US and hiring London based consultants to guide its UK entrance. I’ll talk more about the thinking behind both firms' move in a later post.

Roll over, don’t play dead

Roll over, don’t play dead
In my most recent report, Wings of a Butterfly: Regulation, Rollovers and a Wave of Optimization Software, I discuss the challenges the DoL conflict of interest rule poses to the $7 trillion IRA rollover business. These challenges center on the need for advisors to break down 401k plan costs and make apples-to-apples comparisons of proposed rollover solutions.   Why focus on the rollover? First, the rollover decision serves as a touchstone in the relationship between client and advisor. Trust sits at the center of recommendation to roll over, and seldom are the vulnerabilities of the client so exposed. The importance of the  rollover decision is further magnified by timing. It often takes place at the apex of client wealth, where the consequences of missteps for the investor can be severe. For the advisor, the rollover offers a unique opportunity to capture assets, or at least advise on their disposition, as well as present a coherent strategy for drawdown.   The implications of the decision to roll over extend beyond the client advisor relationship to firm strategy, of course. They are particularly relevant to product development and distribution. I’ll discuss these implications in a later post.

Wells Fargo rides herd on DoL

Wells Fargo rides herd on DoL

It’s no coincidence that Merrill Lynch launched its new robo platform the same week it decided to exclude commission based product from IRAs. Likewise, the decision by Wells Fargo to announce a robo partnership with SigFig suggests that despite the pronouncements of pundits and industry lobbyists, DOL is hardly DOA.

It takes a brave man to guess how the Trump administration will balance populist tendencies with free market rhetoric. In this case, as I note in a previous post, the inauguration of the new president precedes DoL implementation by less than three months. The regulatory ship has left port, and in any event, it's not clear that President Trump will want to spend valuable political capital undoing DoL.

I’ll discuss Wells Fargo’s motivations in a later post. For now, I’ll note the degree to which a robo offer aligns well with the principles of transparency, low cost and accessibility at the heart of DoL. At the same time, I caution the reader to consider the challenges that any bank faces in rolling out a robo platform, a few of which I underscore in this column by Financial Planning’s Suleman Din.

Introducing The Cognitive Advisor

Introducing The Cognitive Advisor

Last week I published a report on a topic that has interested me for some time: the application of artificial intelligence (AI) technology to the wealth management business. To date, neither Celent nor its industry peers have written much about this topic, despite clear benefits related to advisor learning and discovery. This lack of commentary, and the industry skepticism that underlines it, reflects successive waves of disappointment around AI, and more recently, competition for research bandwidth from other areas of digital disruption, such as robo advice.

Another inhibition relates to taking on an industry shibboleth. How to reconcile AI or machine intelligence to the hands on, high touch nature of traditional wealth management? This challenge is real but overstated, even when one reaches the $1 million asset level that has defined the high net worth investor. Indeed, the extent to which wealth management is a technology laggard (in general, but also when compared to other financial services verticals) highlights the opportunity for disruption.

In particular, AI offers a means to circumvent the dead weight of restrictions presented by antiquated trust platforms and other legacy tech, a weight which reinforces advisor dependence on spreadsheets and other negative behaviors. As is set out in the report, it is precisely the combination of new behaviors and technologies that can help surmount the finite capabilities of the human advisor.

Guidance, not advice

Guidance, not advice

Last week Merrill Lynch announced the launch of its long awaited Guided Investing robo advisory platform. Investors get access to a fully automated managed account for only $5,000, compared to the $20,000 required for call center driven Merrill Edge.

A new type of hybrid model

It’s interesting that Merrill Lynch would launch another managed account platform at this point, given the narrow gap between the two program minimums. But industry wide fee compression underscores the importance of cost savings, and with Merrill Edge’s best growth behind it, even a call center is expensive compared to a digital first approach.

I say “digital first” because Guided Investing clients can still get access to a human advisor. In this case, however, the advisor delivers (in the words of a Merrill spokesman) “guidance” and “education”, and not investment advice. Advisors are able to explain product choice as well as why and how a portfolio is rebalanced, for example. Such capabilities reinforce the Merrill message that its portfolio models are not just algo driven, but managed by the CIO.

Compliance friendly

The compliance friendly terms “guidance” and “education” give another clue to Merrill’s intentions. Like BlackRock and other asset managers discussed in my previous post, Merrill wants to get ahead of the DoL rule and fill the advice gap that will be left by the rollout of a uniform fiduciary standard across both the qualified (retirement) and taxable investment spaces. It’s worth pointing out that Merrill announced its decision to stop selling commission based IRA accounts the same week it launched Guided Investing.

Compliance and economics are powerful (and mutually reinforcing) motivations. Especially when the economics are not just about cost savings, but about the chance to develop a whole new client segment. Guided Investing represents not just another robo platform, in short, but an effort to lower delivery costs and fill out the range of options Merrill offers clients, particularly younger and self-directed ones.

Merrill believes (correctly, in my view) that this type of managed investment solution will be as ubiquitous as mutual funds within five years, and so it has no choice but to move forward. Vanguard finds itself at the same crossroads, which is why the firm’s plan to launch a fully automated robo platform (as a complement to its $40 billion AUM Personal Advisory Services hybrid program) is probably the industry’s worst kept secret.

 

Shining light on the thinking at BlackRock

Shining light on the thinking at BlackRock

It’s clear that there’s more than a little chutzpah behind BlackRock’s demand for tougher regulatory oversight of robo advisors. This post probes the thinking behind it.

Does BlackRock, with FutureAdvisor in hand, want to shut the door on new robo entrants? A desire to forestall such competition would suggest a level of fear that I do not think exists. (Among other things, the robo narrative has moved past the independent or 1.0 stage). BlackRock’s main concern seems to be that the sloppy hands of existing competitors might result in regulatory sanction on everyone, and so put the hegemony enjoyed by BlackRock and its asset manager competitors at risk.

Neither faster, nor better, nor cheaper

While BlackRock may have paid $150 million for FutureAdvisor, I don’t think the firm believes it owns a better mousetrap. FutureAdvisor may have an innovative glide path feature (which may explain why FutureAdvisor has an older clientele than its robo competitors), but tax loss harvesting, 401(k) advice, “try before you buy” functionality and other core capabilities have become table stakes in robo world. If anything, BlackRock may believe that its proprietary ETFs (characterized by low tracking error and a broad product base, e.g., Japanese fixed income) outshine the plain vanilla offerings of Schwab and Vanguard, although this argument is undercut somewhat by the firm’s recent decision to drop fees.

Asset managers in the catbird seat  

Like the ETF business, robo advisory services have become increasingly commoditized, even as the DoL conflict of interest rule presents a massive tailwind for both. It’s a tricky time for asset managers seeking to shift their offer from manufactured product to advice based solutions.  BlackRock appears to feel it is in the catbird seat, and is perfectly happy to secure its hand and that of its asset manager competitors, all of whom have done well by automating their investments platforms. I’m not saying there’s collusion here, just a noteworthy confluence of interests.  

I’ll talk about the motivations behind the launch of another asset manager-backed robo in my next post.

In robo world, B2B = buyer beware

In robo world, B2B = buyer beware

The success of robo advisors in commoditizing the historically manual portfolio management process is proving their Achilles heel, as I noted in my last post. Incumbents have taken over the narrative. Yet the efforts of these incumbents to build, buy and partner with the robos comes with its own risks.

Foremost among these is how to implement robo advice within a multichannel ecosystem. As discussed in the report, Getting the House in Order: Consolidating Investment Platforms in the Wake of the Department of Labor Conflict of Interest Rule, the ability to deliver consistent advice across channels has become paramount in the new regulatory environment.

This consistency requires a clear view of assets held in house, which in turn implies eliminating product stacks and their underlying technology silos. Of the big four US wirehouses, Bank of America Merrill Lynch has led the way by consolidating five platforms into one. Their competitors are still trying to solve the problem.

Regional banks, with their legacy tech and limited budgets, are going to have a hard time getting this right. Asset managers are eager to help them launch robo platforms, despite the “me too” nature of the banks’ efforts. 

It’s hard to blame these asset managers for wanting to distribute their wares. B2B sales are in their DNA. But I’d point out that their headlong rush to abet bank robo contrasts with their cautious efforts to roll out on their own platforms.

Schwab spent months and millions to launch Intelligent Portfolios. UBS has moved much more slowly, and appears to be using SigFig as a placeholder until it can achieve the technological and service clarity demanded by clients and regulators alike. Fidelity danced with Betterment before rolling out Go through its retail branches. It's tepid if not touch and go.   

I don’t begrudge asset managers for taking their time. They have their own considerations, foremost distribution. That’s why they are enabling bank robo capabilities, even if it's not clear exactly how the banks will manage this. Why not give the teenager the keys to the Audi? But with their own clients, they have to get things right. They have shareholders to answer to, and the stakes are much higher.

The Big Bad Robo Halt

The Big Bad Robo Halt

Let’s pause. Take a break. No, the big bad robo halt isn’t the Betterment Brexit brouhaha I discussed in the WSJ last week. It relates to the degree to which the hype around robo has dwindled.

As detailed in last week’s webinar, robos’ ability to automate previously high touch advisory functions is proving their comeuppance, at least in startup world. The commoditization of the portfolio management process, from asset allocation to rebalancing to tax loss harvesting, works in favor of the large incumbents, with their advantages of brand and scale.

Meanwhile, product innovation efforts by independents as described in my Robo 3.0 report have gained little traction. While the robo value proposition (centering on transparency, cost, and user experience) broached by first movers Wealthfront and Betterment and others remains very much in play, incumbents have co-opted the vision.

We're not yet at the point of a fire sale, but the price tag for independent robos is shrinking fast. This is a question of deployment as well as value; among other things, it's become apparent that putting into action a store bought robo is not as simple as plug and play. I'll discuss the robo world challenges facing asset managers, banks and other incumbents in my next post.

How can financial institutions capitalize on viral marketing ?

How can financial institutions capitalize on viral marketing ?

Financial institutions are successfully using social media to promote their brands, but I am yet to see FS firms use viral marketing, a type of marketing that relies on consumers to spread information, often by social networks. Viral marketing is appealing because of the low cost distribution generated by individuals sharing information with one another.  However, it can be challenging to figure out what message will resonate with a target audience.

FS firms have dedicated social media teams to cultivate positive brand awareness.  Last spring, Morgan Stanley launched a program to spread the message that their work benefits society at large, not just their clients.  Twelve months since this program began, the Morgan Stanley brand has increased by 6%.

Persistent themes in social content disseminated by financial firms are: current events, innovation, charity, and nostalgia. Current events include the Olympics or #FriendshipDay, and let the customer know that the company is current and relevant today.  Twitter and LinkedIn are great forums to showcase new innovations in technology and by using social media, companies are inherently perceived as more tech savvy.  Financial firms, particularly incumbents, who may have received the brunt of the negative PR after the Great Recession, can casually mention their charitable efforts while still coming across as authentic.  Lastly, companies can create a warm and fuzzy spot in customer’s minds by making reference to a TV sitcom from yesteryears.

All of this is being done today, so what else can companies do? Viral marketing is a logical next step in a social media marketing strategy. Recently, I had several publications send me the same what-if scenario tool, which calculated the “true” cost of childcare when one parent chooses to temporarily or permanently leave the workforce. Given the upcoming elections in the United States and the fact that childcare costs are a topic of debate between the two candidates, the timing of the analysis tool contributed to its appeal.

It also got me thinking, “Wouldn’t it be cool if banks caught the attention of retail or mass affluent customers by way of viral marketing?” For example, if FS firms are trying to target millennials employed by start-ups, they could build a scenario analysis product that compared the value of a traditional stock option to the dollars sacrificed by taking stock instead of cash.  Or even a simpler mass-market tool, like one that showed how diversified a portfolio would be if a customer selected 12 stocks of their choice, would appeal to a generation consumed by gaming.  If the tool is initially shared with a select audience and proves to be likeable, it will hopefully gain traction and be spread from one individual to another. A share coming from a friend or via a publication that is credible in the eyes of the consumer is more authentic than social content shared directly from a FS firm.  The creation of authentic endorsements is the main benefit of viral marketing.

This idea of sharing a product for free via viral marketing entails a “freemium” pricing strategy, whereby a company offers an initial good or service for free in the hopes that a customer will be hooked and pay for additional products or services. In this case, a freemium tool spread by viral marketing may encourage customers to open a self-directed account. There does not seem to be much downside risk if these individuals would have otherwise kept their money in cash or gone to another self-directed platform or robo-advisory service.  The HNW/UHNW customers that would otherwise be paying for these what-if scenario tools would not feel slighted, because the full benefits to these tools are realized when they are used in conjunction with advice and with a holistic view of the customer’s assets and goals.

Capital One Rolls Out a Bank Built Robo

Capital One Rolls Out a Bank Built Robo

In a blog post yesterday I took automated advisors to task for the black and white way (advisor-assisted “hybrid” model versus “digital only”) they have framed the robo debate. Imagine my surprise when I saw that Capital One’s brokerage arm had launched a platform addressing this very complaint.

The Capital One robo combines a digital interface with telephone access to advisors. It’s an advanced take on the hybrid models offered by Personal Capital and Vanguard, both of which use digital technology (iPads, smartphones and other interfaces) to enhance and scale the contribution of the individual advisor.

What these models do not do is digitize advice delivery. Yes, they deploy algorithms to develop risk based portfolios, but firms have been doing this for ages. The defining characteristic of robo (as opposed to automated) advice is the removal of the real life advisor.

Robot with Benefits

The Capital One robo or robot is a step in that direction in that it automates the entire portfolio manufacturing process, while giving investors the options of getting a wise uncle (or aunt) on the phone to discuss it. This process spans risk profiling and portfolio construction on the front end to compliance and funding at the back.

Needless to say, clients pay for the privilege, to the tune of 90 basis points. This is not much less than the average US advisor charges for his services, and it is a given that other firms will replicate this model, and at half the price. In the meantime, give Capital One kudos for being the first US based bank (Bank of Montreal, whom I discuss in a recent report, was the first in North America) to roll out a homegrown, pure play robo advisory platform.