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Hands Off: Customers Want Robo Services from their Bank

After years of hesitation, U.S. consumers are now ready to open investment accounts at their bank.

The twist: instead of relying on financial advisors and brokers in the branch, they want computers to help guide their investment strategies. Banks also need to be careful that the new offerings don’t cannibalize funds that sit in existing savings and checking accounts.

New research from Novantas and robo-advisory firm SigFig shows that 68% of bank customers are very interested or extremely interested in opening a robo-investment product. Of those, a whopping 88% say that they will open an account in the next 12 months.

And significantly, most of them prefer to get the service from their bank instead of another institution.

That is good news for the growing number of banks that are exploring the use of robo-advisory products, which use computer algorithms to set asset allocations with automated rebalancing. The model, which sits between do-it-yourself-investing and human wealth advisor-based relationships, is often aimed at consumers who have $5,000-$250,000 in investable assets. Many of these consumers just aren’t comfortable managing their own portfolios and don’t have enough money to attract wealth-management firms.



Novantas believes that banks are well-placed to serve such customers. Consumer investment assets have been most elusive for retail banks because customers haven’t considered their offerings to be as credible as major brokerage and wealth management firms in consumers’ minds. The advent of robo investment now offers banks a new arrow in their quiver.

And banks that pursue such strategies can also use them as a potential path for providing more personalized wealth-management offerings in the future.

The robo-advisory category has been growing rapidly over the last 5 years, fueled by direct-to-consumer fintech players like Betterment, SigFig, Wealthfront, Personal Capital and others. The addition of robo products from mainstream companies like Vanguard and Schwab has resulted in the largest influx of assets to this new category.

While robo-advisory products now represent less than 1% of consumer assets under management, Novantas projects growth will accelerate to $1.5T of assets in 2020. The new offerings are especially appealing to millennials who have increasing wealth potential, a high distrust of advisors, an aversion to fees, and an affinity for technology.

The trick for the banks is to design these offerings in a way that expands relationships. They also must ensure that customers aren’t just siphoning funds from their other accounts into the new offerings.

The prospect of cannibalization will be a big issue for banks that pursue robo-advisory businesses in the coming year. If the new offerings aren’t structured correctly, any gains that are funneled to wealth-management divisions won’t be significant enough to offset pain at the retail level.



The potential hit is significant: Novantas estimates that for every $100 million in savings deposits moved over to robo-advisory assets under management, a bank can lose a net of $1MM in revenue. That figure assumes the potential for lost NIM (150 bps illustratively) despite an increase in advisory fees (50 bps illustratively).

That’s why banks need to integrate deposit and robo-investment offerings with thoughtful product design, pricing and marketing strategies that lead to overall growth in funds from existing customers. Banks that keep robo advisory as a stand-alone product within the wealth-management division will be missing the impact on retail consumer relationships.



Indeed, customers want that integrated relationship: the top two reasons cited by consumers who are interested in robo services are “I want it to be easy to transfer money between multiple accounts” and “my bank already knows me,” according to Novantas research.

That means banks will need to pull incremental investment dollars from other sources, notably retirement accounts from other institutions. Such consolidation of assets will increase the likelihood that customers stay with the bank.

Novantas sees four important keys to success for banks entering the robo-advisory business:

  1. Design robo-advisory pricing in conjunction with deposit pricing and consider bundling relationship benefits. This will encourage expansion of existing relationships and has the potential to be a distinctive proposition for acquisition of new main bank accounts. Cambridge Savings Bank’s CSB One account is an example where offers and functionality are integrated between their robo-advisory product and checking package. Cash incentives and fee waivers are offered to checking account customers for opening Cambridge’s Connect Invest product.
  2. Align sales and service models to initially bring robo-advisory customers in through the retail segment, but systematically upgrade them to advisory relationships. Clear lines of staff accountability between retail (branch, phone, online), branch-based advisors, and wealth-management business development are required for seamless acquisition, onboarding and cultivation of investment assets, regardless of whether they are transferred from existing accounts or pulled in from outside holdings.
  3. Build comprehensive advice and guidance capability that crosses cash management, investments and lending. Consumers need easy access and integrated advice on using all the bank’s products appropriately across life events and life stages.
  4. In marketing messaging, stress the point that all the products consumers need are available from their main bank. Novantas research on the drivers of bank distinctiveness highlights “serves all banking needs” as cited by 46% of shoppers as important in selecting a bank. The availability of a robo-advisory product that is integrated with a checking relationship can be compelling for customers.

Robo-advisory products present an attractive addition to banks’ product set and potential fee income. White-label partners also make it more practical than ever, especially amid competition from fintech providers, national banks and direct banks. But the path to success will challenge longstanding problems of segregated management of product, pricing, sales/service and marketing across retail and wealth-management domains.

Done well, this nascent product can result in larger, longer and more profitable customer relationships.


Paul Kadin
Managing Director, New York
pkadin@novantas.com

Karen Graham
Director, Chicago
kgraham@novantas.com

For more information, contact Novantas Marketing

+1 (212) 953-4444


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