Broker’s pitch to small banks, credit unions: We’ll handle robo advice

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The big banks offering robo-advice to customers have typically spent millions on partnerships and acquisitions to add the tech or significant time and resources to develop their own platforms.

But a deal between a robo-advice provider and a brokerage may demonstrate a new model that allows community banks and credit unions to offer robo-advice capabilities without a significant investment.

Jemstep, a robo-advice provider owned by the mutual fund giant Invesco, announced an agreement Wednesday with Infinex Financial Group, a Meriden, Conn.-based firm providing investment services to over 220 regionals, community banks and credit unions. Over the next few months, Infinex will roll out Jemstep’s Advisor Pro automated advice technology to the 650 advisers it is connected with at various institutions nationwide, which collectively manage over $30 billion in assets.

“We saw the needs for digital engagement,” said Al Dabiri, senior vice president and managing director of wealth solutions for Infinex. “We wanted to find solutions for the needs of our clients without them having to go out and figure out how to do it on their own.”

Through Infinex, advisers will be able to access Jemstep’s platform to digitally manage a client’s investment needs, said Jemstep President and CEO Simon Roy. The platform is built to handle the entire process, including the initial application, moving money in and out of accounts, investment selection and management. It is integrated with Pershing for asset custody.

“We are offering the ability to have a flexible model,” Roy said. “The client experience can be all-digital, or they can engage with advisers at any point.”

A key benefit is cost savings: Infinex, not its clients, will pay Jemstep the technology licensing fee, which will be based on the amount of assets it brings to the digital platform, Dabiri said. Switching to digital also reduces the cost of providing investment advice, Roy said, particularly in terms of client communication.

From discussions with banks, Roy said his firm estimated printing and mailing out the various statements to investment clients can cost over $20 per account per year. Some retail banks charge $1 to $5 fees to offset that cost.


Another advantage of this deal, Dabiri said, is that its bank customers do not have to partner directly with a digital advice fintech, so they don’t have to share their data, as some fintechs require.

“They own the client in our situation,” he said. “They are not referring the client off their platform. The client still stays within the investment service, and they retain full transparency into the client.”

Gene Todd, managing director of wealth management at the $6.2 billion-asset First Bank in St. Louis, which is using the platform, said he expects it to help the institution better identify the savings and investment needs of clients. He also predicts it will increase the percentage of retail clients who also invest with the bank.

“Digital investment advice should be complementary to our core wealth management service offering,” Todd said. “The traditional retail process usually results in every new client, regardless of their persona, ending up with the same old traditional retail banking products. It’s truly no wonder the percentage of bank clients who look to their institution for wealth management needs has remained stagnant for decades.”

Todd predicted that most of the customers using the digital advice platform will be beginners with small accounts.

“Our strategy is that as those clients ramp up their earnings curve and become bigger clients who require more sophisticated advice and solutions, we will stay with them as trusted advisers every step of the way,” he said. “We believe many will eventually graduate to working directly with one of our financial advisers.”

First Bank currently manages $660 million in investment assets on behalf of more than 6,000 clients.

The platform deal is offering benefits, particularly for a small institution already trying to manage overhead and client acquisition costs, said Joel Bruckenstein, co-creator of the Technology Tools for Today conference series.

“A very large firm with a lot of resources can build its own robo-adviser. That makes sense; they want to control the data and the user experience, and integrate it with other things that they own,” he said. “If you’re a small institution, it doesn’t make sense to build out your own technology. It’s not nearly as cost-effective. Then, it is a matter of who you outsource to.”

Customer data is increasingly an asset for financial institutions, Bruckenstein added. “Data itself is very important, as is having control or access to that data,” he said.

Roy said his firm’s efforts with its platform include helping small banks keep clients who want to invest, and not lose them to competing apps or robos.

“Traditionally, at a small bank it’s been very difficult to get a hold of an investment adviser,” he said. “Now the entire process can be done in 10 minutes digitally. We’re reducing friction and increasing retention of assets, and helping banks transfer clients to fee-based wealth management services.”

The digital advice space continues to expand, as banks, custodians, apps and fintechs all offer up online investment offerings, many increasingly mixed with banking services. Several studies also predict rapid growth in the market. Assets under robos should grow by 27% a year, hitting over $2.5 billion by 2023, according to Statista.

That’s why even at the community banking level, having digital advice capabilities is now necessary, Bruckenstein said.

"Clients look around, they see Bank of America has Merrill Lynch, Wells Fargo has Wells Fargo Advisors, and they all provide a digital experience, and small banks have to figure out compete with that," he said. "There is some intangible value to community banking. But today, if I can't do my banking and investing electronically, I'm moving my money out, no matter how much I like them and the cup of coffee they offer me. You've got to get the fundamentals right."

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