The robo-advisor revolution is well underway, and the banking industry is finally starting to take notice. Although, the five year old robo-advisor phenomenon still barely scratches the surface of investment assets under management – roughly $200 billion of the more than $50 trillion invested in the United States.
Robo-advisors are expected to grow exponentially between now and the year 2025 to between $6 and $8 trillion. That kind of growth will get anyone’s attention, including the typically unadventurous banking industry. With the announcement that Rhode Island-based Citizens Bank is preparing to enter the robo-advisor field, it is becoming apparent the banking industry does not want to be left behind.
Citizens Bank becomes the first large regional bank to offer a fully integrated digital banking and wealth advisory service free to its customers. The new service will go online at the end of September for customers in New England and parts of the Midwest. Most of the large national banks have already introduced a robo-advisor platform or have announced plans to do so soon.
Everyone in the Pool
Once only the domain of fintech newcomers, such as Betterment and Wealthfront, the early success of robo-advisors has created a technological uproar within the entire financial services industry. Most of the big names are crawling over each other to bring their version to the masses.
Online brokerage firms, such as Fidelity Investments, Charles Schwab, and E-Trade came on board in 2016, as did mutual fund giant Vanguard. Wall Street firms, Morgan Stanley and Goldman Sachs are readying their own robo-advisor launches as well.
Will Banks Benefit from Robo-Advisors?
Some industry experts would say that banks are especially primed to capitalize on the robo-advisor trend because of their massive footprint in the markets that are attracted to low cost and convenient virtual advice – primarily investors with minimal assets who don’t have access to financial advisors.
Although the jury is still out on whether bank customers will storm the doors for robo-advice, the potential growth of assets is enough to warrant a big investment by banks, which are estimated to spend more than $150 million in the coming years to add the technology.
Banks especially can take advantage of any technological advances that can help to rebuild their image, which is still reeling following the financial crisis of almost a decade ago. Robo-advisors have been successful in large part because they are the anti-institution, bringing low cost, accessibility, personalization, convenience, and transparency to a big portion of the American public that spurned big banks and Wall Street firms following the crisis.
Citizens Robo-Advisor Offering
Citizens Bank is following the typical robo-advisor platform model, offering two tiers of service, including free investment guidance with no account minimum requirement and paid investment management that requires a $5,000 minimum investment.
The free service, which is called SpeciFi, allows investors to create a personal investment and risk profile online from which it will create a personalized investment strategy. SpeciFi will invest their money according to that strategy and provide ongoing advice.
The paid service will offer more personalized advice with the help of live financial advisors and take a more active role in monitoring and adjusting the portfolio based on the investor’s and the market’s circumstances. It will charge investors between one-half and one percent of the assets under management.
Citizens will be the first bank to offer fully integrated online management, allowing its customers to manage both their banking and investment accounts on one platform. Customers will also be able to link any of their other investment accounts for complete online tracking of their investments.