In rolling out a robo advisor backstopped by human planners, Edward Jones is approaching the problem of how to serve young investors in the exact opposite way of many of its rivals.
Fidelity Investments and Vanguard for years have offered automated investing, eventually adding human oversight once a client's assets surpass certain thresholds. Both Fidelity Go and Vanguard Personal Advisor, the firms' hybrid robo services, were started at firms that were mostly known for working with investors online, notes Will Trout, the director of securities and investments at Datos Insights.
Edward Jones' new Digital Managed Solutions hybrid robo advisor, by contrast, comes from a firm primarily known for advisors who meet face-to-face with clients out of branch offices. Therein lies both Edward Jones' prime difficulties and opportunities, Trout said.
"Edward Jones has one of the largest branch networks in the industry, with deep roots in small towns, suburbs and mid-market communities where Fidelity and Vanguard have comparatively thin physical presence," Trout said.
Catch them young, advise them as they grow wealthy
Announced last week, Edward Jones' Digital Managed Solutions targets a group of investors increasingly coveted by wealth managers: young earners and savers just starting to set money aside for retirement and other purposes.
Like many firms, Edward Jones wants to work with these clients before they've accumulated enough assets for full-time relationships with financial advisors. The hope is that when they do need comprehensive financial planning, they don't go looking for it elsewhere.
"We are very successful with our traditional branch model," said Ryan Robson, who oversees the firm's New to Wealth Business Segment. "But we're attracting more people that might be established and closer to retirement, and so we're really aiming at attracting that next-gen investor."
Rather than roll out Digital Managed Solutions out to the general public, Edward Jones is first offering the hybrid robo service to employees in its home offices in St. Louis and Tempe, Arizona. Robson said about 100 in-house investors will test the offering this year. Should those trial runs go well, Digital Managed Solutions will be offered to clients through the firm's branch advisors beginning next year.
What sets Edward Jones' new robo advisor apart
Robson said one distinction of Digital Managed Solutions is its low asset minimum. Investors need only $5,000 to get automated investing backed up by human advisors. Fidelity's minimum for such hybrid services is $25,000, and Vanguard's is $50,000.
Robson said Edward Jones plans to charge investors a fee equal to 0.65% of the assets they hold in the Digital Managed Solutions — although that amount is still subject to change.
"We're priced slightly lower than wirehouse competitors, but we're slightly higher than what I call the discount providers," Robson said. "We're trying to find that happy medium of being competitive in the market, but also recognizing the value that we're providing to a client in that human-advice space."
Edward Jones has set itself the difficult task of building a digital product on top of an already established branch network, Trout said, but isn't competing with its price or app design alone.
"It's competing on the promise that a client who starts digitally can graduate into a real relationship with an advisor who's already local, already known and already positioned to handle more complex needs down the road," he said.
Trout said Fidelity and Vanguard can offer similar opportunities. But those firms' advisors are generally "centralized and remote" without the local presence offered by Edward Jones.
"For a lot of younger investors, especially those inheriting wealth or starting families, having an actual person nearby who already knows the family, or who a parent or in-law already trusts, is a meaningfully different value proposition than an 800 number tied to a national brand," Trout said.
Edward Jones' recent changes
Digital Managed Solutions is just one of many shifts Edward Jones has made in recent years to compete — and was perhaps overdue, Trout said. Other recent changes include allowing advisors to work together on teams, rather than largely insisting they operate solo practices. The firm has also sought to expand its work with high net worth clients — ensuring, for example, that they can access alternative investments like private equity and private credit.
Separately, Edward Jones has announced internal structural changes that will eventually allow more advisors and others to become partners with ownership stakes. And Edward Jones has won regulatory approval to start a state-chartered industrial bank that will be able to offer certificates of deposit and accept deposits.
In offering a hybrid robo advisory service with an eye toward moving clients into relationships with advisors, Edward Jones is following a business plan long embraced by other wealth managers. Morgan Stanley, for instance, often talks about how it views its E-Trade self-directed trading service as the top of a funnel leading investors to the firm's financial planners.
"Because Edward Jones' whole business is structured around advisor relationships, a client who starts on Digital Managed Solutions has a clear, natural way to graduate into full advisory service without switching firms or platforms," Trout said.
One offering Edward Jones isn't yet providing investors is a true self-directed system that would let clients build a portfolio without guidance from either a robo or human advisor. Robson said he and his colleagues see a strong desire among young people to be a do-it-yourself investor.
"It's a very different model and offering from what Edward Jones has historically done," Robson said. "Giving clients advice is our core business, but we recognize there's a whole bunch of our clients that have a DIY account elsewhere."
