Editor at Large

As many banks balance trying to get the attention of millennials and keeping wealthy baby boomers happy, Citizens Financial Group is developing a new robo-adviser with SigFig for the largely ignored Gen Xers.

"Life stage is really important," said John Bahnken, president of wealth management for the $147 billion-asset Citizens. "People 40 to 45 years old who are building for their retirement are likely to be the people who will initially put money in these accounts. It lets them build and manage their portfolio in a goal-based manner."

Older clients are less likely to use a robo because they are in the "deaccumulation" phase of their lives, Bahnken said. They've already built their nest eggs.

The common wisdom is that robo-advisers — apps that ask questions to determine the investor's risk tolerance and goals, assess their current investments (through screen scraping) and recommend a basket of exchange-traded funds — are used mainly by digital-savvy millennials. But some say that isn't true.

"Millennials are just starting out in their savings," said Eli Broverman, co-founder and president of Betterment, the largest robo-adviser, with 200,000 users and more than $5 billion in assets under management. For Betterment, it's less about age and more about lifestyle and personality.

"Our customer is the tech-loving investor, somebody who seeks out the best technologies," he said. The average age is 51. Betterment's biggest sources of customers and competition are the giant investment providers Vanguard, Fidelity and Schwab.

In partnering with a robo-adviser, Citizens is following in the footsteps of banks like BBVA, which partnered with FutureAdvisor earlier this year; Wells Fargo, which announced its own partnership with SigFig in mid-November; and Bank of America, which is building its own robo, guided by Merrill Lynch's chief investment office.

"A bank like Citizens or Wells has a much higher concentration of mass affluent and retail customers, and up until now, the offerings they have had for retail customers have been slim to none," said Michael Sha, founder and chief executive of SigFig. "The problem is, if you've got $200,000, you're not an interesting client, you're underserved."

Buy to Build

The first decision Citizens had to make, after deciding to offer robo-advice, was whether to build it in-house or partner with a white-label robo provider like SigFig or FutureAdvisor.

"We made an early decision that partnering with a fintech made the most sense from a technological standpoint," Bahnken said. "That would allow us to focus more on how we would integrate this capability into our overall offering, and how we would construct the portfolios — things where we thought we could add value and benefit from the fintech's sophisticated use of technology."

When the product is first rolled out in 2017, it will be based on SigFig's basic ETF-centric robo, with SigFig subadvising some portfolios in the early stages. Over 2017 and 2018, the bank plans to shift to its in-house expertise.

"We envision these will be fully Citizens-advised portfolios by midyear and potentially sooner," Bahnken said.

So over time, this will become less of a robo and more of a digital channel to Citizens' investment advisory business.

"This new technology provides a different interface into those decisions," Bahnken said. "The client would go through a series of questions to establish their risk tolerance and what their goals are. Then there's that diagnostic of their existing portfolios, if they have them. And then we'll make recommendations if the client wishes to have their portfolios managed by Citizens."

The robo will be part of Citizens' online and mobile banking platform, offering customers convenience, including a single sign-on and the ability to move money between accounts, Bahnken said.

"We also view this as being complementary to our financial consultants," he said. "There's a significant portion of the investor population that's interested in digital solutions, but they also talk to someone. … We'll offer that to our client, so they can choose to do the whole thing themselves or they can get the input of a financial consultant."

There will be a live chat feature that customers can use midstream from the robo. There will also be an investment call center linked to these accounts, so a client could pick up the phone while they're going through the process and talk to a financial consultant.

The fees and commissions will be "competitive," Bahnken said. "A lot of firms have gravitated to the 40-75-basis-points range," he said. "We'll be in that range, perhaps on the lower end."

How the new robo will be branded hasn't been decided yet. Citizens may want to use its own name and brand entirely, or it may use a line like, "Powered by SigFig."

"We certainly have the contractual ability to do that," Bahnken said. "We're just not sure if it will help us or not."

Kristin Broughton contributed reporting to this story.

Editor at Large Penny Crosman welcomes feedback at penny.crosman@sourcemedia.com.