Are big banks too big to robo?

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The biggest U.S. banks are steadily moving into robo advice and the industry predicts the field will rapidly grow as they tap into their retail client base.

But a new report suggests that while banks may have the resources and the volume, they may not be able to stay relevant with the latest innovations in digital wealth management.

"It's not that they can't, it's just that big banks often don't have a good track record of doing this over time," says Davis Janowski, senior industry analyst at research firm Forrester, and author of the report.

Janowski argues that banks will need to coordinate multiple resources and commit to growing their digital offerings, and sustain long-term commitment toward ongoing collaboration between internal teams.

"This would include R&D, operations and marketing as but one example," he says. "There has to be constant iteration of new features and improvements to old and constant marketing of the product across multiple channels to include very active and responsive social media campaigns. Banks, especially large old incumbents, lack a good track record of doing this consistently."

Currently, three American banks have rolled out a robo platform: Bank of America Merrill Lynch, Wells Fargo and Capital One.

The prize is capturing the growth of digital wealth assets: According to A.T. Kearney, nearly $2.2 trillion will be managed by digital investment managers by 2020, while Deloitte says it will be between $6 and $8 trillion by 2025 in the United States alone.

Big banks will need to spend up to $150 million on either buying or building a new platform, Janowski estimates, a large commitment for revenue that is guaranteed to have very slow growth, he adds.

Wells Fargo counters it is well-positioned to capture digital wealth management assets.

"Clients, including millennials, want to invest in institutions that they trust and have confidence in," says Eduardo Queen, director of digital investing at WellsTrade and Intuitive Investor. "We have an edge there because we already have so many clients using our banking services."

There is little daylight between the newly launched advice platforms of incumbents and those developed by digital startups, Queen adds, noting that the cornerstone of Wells' robo is providing convenience for low cost advice by having it available where clients already bank.

"We are all really starting at the same point," Queen says. "There’s not that much of an edge that the other companies have if you think of it like that."

There is a similar premise with Merrill Edge Guided Investing, which is the latest offering in a lineup that includes Merrill Edge, Merrill Lynch Wealth Management, and U.S. Trust.

Bank officials have framed the robo adviser as either a stand-alone service or as a complement to their relationship with Merrill Edge, Merrill Lynch or U.S. Trust.

It's not a replacement for Merrill Lynch advisers, said Andy Sieg, firm chief, nor are robos seen as competition. "I think some see it as an innovation lab that is bringing new abilities to them more rapidly,” he said.

Capital One's offering — called Advisor Connect — is staffed by advisers with CFPs. The bank launched the service, said Yvette Butler, president of Capital One Investing, because "customers want their financial life to catch up with digital life."

Digital-first advice firms have weighed how the biggest banks will fare in the space, says Betterment’s director of behavioral finance and investing, Dan Egan.

Shifting business models for a long-term strategy into developing or buying a new digital platform could be a daunting task for a big bank already making money, he suggests.

“We do not have existing revenue streams that we’re worried about cannibalizing," Egan says. "They could've started robos years ago but they weren't incentivized to do it."

Egan argues digital-first firms have the edge in the space because they have been investing, testing and developing their platforms in real time. “It’s like being a race. It’s not just about being faster, it’s having a head start,” he says.

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Robo advisors Digital banking National banks Automated investing Technology Wells Fargo Advisors Bank of America Merrill Lynch Capital One Investing