Digital investment advice spreading to regionals

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Just three years ago, Webster Bank doubted that robo-advisers had any place in private banking.

But now the Connecticut-based regional bank has unveiled an automated advice offering paired with human guidance, delivered through a platform developed by national broker-dealer LPL and BlackRock.

One reason for the change of heart is that the dominant robo-advice model has transformed from digital-only to a hybrid of human advisers and software, explained John Olerio, senior vice president and director of Webster Investments.

“That’s a better model, and we think it’s one that fits with our overarching evolution of who we are, who we are serving and who we want to serve,” Olerio said.

The arrangement with LPL and BlackRock allows Webster to satisfy customers who would like some advice delivered online while avoiding a multimillion-dollar investment to build its own platform, industry observers note.

“In financial services, disruptors never start by taking the customer wholesale, they take the customer’s next dollar, they take a bit of their mindshare or a bit of their wallet share,” said Peter Wannemacher, senior analyst at Forrester.

Digital investment advice has a number of players trying to secure a piece of the market, which is expected to reach $4 trillion in assets in four years.

In addition to digital-only advice firms such as Wealthfront and Betterment, online firms such as Ally Bank offer automated advice offerings. The biggest banks, including Wells Fargo and JPMorgan Chase, have unveiled robo-advice platforms as well. Webster, with $26 billion in assets, is among the first regional banks to roll out a digital advice offering. Citizens Bank is another, adding a robo through the UBS-backed tech provider SigFig.

LPL’s provision of its platform to Webster is a surprising move, noted Doug Fritz, founder of San Francisco-based F2 Strategy, in that few other regionals have piggybacked off other firms to get a digital advice offering to market.

“They’ve likely done the algebra here,” Fritz said. “They’ve seen a lot of other firms work with technology vendors to get a digital solution up. There’s not enough time to catch up to customer expectations, so they have to partner to get something done sooner.”

As a customer of LPL’s investment advice research, Webster has been involved with LPL’s digital advice platform, Guided Wealth Portfolios, since the broker-dealer struck a partnership with BlackRock's FutureAdvisor to build its underlying technology, Olerio said. In its new offering, Webster’s own bank advisers will provide the human advice element while the portfolios will be developed by LPL, he added.

Currently, the bank sees clients coming from three streams: millennials with the minimum $5,000 to invest; pre-retirees wishing to roll over their 401(k)s and retirees managing their own finances. The fees attached to the bank’s adviser advice are 45 basis points, which is in addition to the fees LPL charges for its portfolios and platform use.

That is higher than what other digital wealth management providers are charging, Fritz noted, though he acknowledged that would still be less than a traditional offering in private banking.

The option gives the bank a card to play to customers eyeing other digital advice opportunities in the market, Fritz added. “This works very well for any cross-selling the bank wants to do,” he said. “The customer has a 401(k) with Fidelity but they don’t have any investment relationship with the bank. That’s an unspoken but huge market for any bank-based digital solution.”

Indeed, Olerio said the bank was partly prodded into offering digital investment advice after listening to customer feedback.

“Loud and clear, they told us they wanted mobile access but still have the ability to deal with a person,” he said. “Whether it’s via chat or by phone, that communication with clients is important. We need to make sure we’ve got state of the art technology, products and staffing of professional individuals.”

In the first phase of the offering, the bank will assign two phone-based advisers to serve customers, Olerio said, before expanding the offering to all 55 of its advisers working across the organization. It will be a stand-alone app, but there is a plan to bring all of the bank’s offerings together on mobile, he said.

Forrester’s Wannemacher said that is the wisdom of such an offering, since banks must build a new online ecosystem of services, including mobile banking, digital investment advice and personal finance management, to stay competitive.

“Many banks want to become a platform, but that is very difficult, for a variety of reasons,” he said. “Some are technological, some are economic, and some involve changing customer behavior. Open [application programming interfaces] are not a magic bullet, but they enable a more dynamic ecosystem to develop.

“[Webster] is doing this earlier than other banks of their size,” Wannemacher said. “That lets them learn and adapt.”

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