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HSBC joins banks offering retail robo advice

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HSBC joined the ranks of banks offering retail robo advice to small clients, tying up with independent robo advice platform Marstone to deliver its service.

Called Wealth Track, the white-labeled platform begins a pilot program later this month, ahead of a full scale launch slated for next year. It will be available to retail banking customers with at least $5,000 in an individual retirement account and $10,000 in discretionary accounts. The service carries an annual 50 basis point fee.

The launch adds to the trend of banks attempting to tap into their existing base of retail checking account customers as a way to create instant scale in low-cost wealth management.

Indeed, the partnership allows the London-based bank to reach clients beyond its branches in the U.S. and appeal to younger clients looking for a way to invest digitally, according to the firm. “HSBC has made a very large investment in the U.S. franchise," says Michael Boardman, head of wealth management at HSBC, in an email. "Wealth Track will create a new innovative business model for our [U.S. wealth management] customer base and signals to the market our commitment to our customers and helping to serve them when, where and how they choose." The bank has 38 million clients worldwide and manages $2.6 billion in assets.

Wealth Track is also fully integrated with Pershing, HSBC’s custodian, which was a major attraction, says Marstone CEO Margaret Hartigan.

“Our strategy is to use partnerships with custodians and core process companies,” she says. “It’s hard for anyone to do it all on their own.” Through Pershing Advisor Services, the custodian is partnered with several other robo providers.

HSBC is planning to roll out a platform for advisors after the full-scale retail launch, according to Hartigan.

The London-based bank's digital offering comes after other large and mid-sized lenders launched digital tools of their own to retail clients. Fifth Third Bancorp’s securities unit teamed up with Fidelity to offer automated advice in June. Additionally, BankMobile, a division of Customers Bancorp, and MemoryBank, a unit of Republic Bank & Trust, have launched mobile-only units.

“HSBC has likely seen the success some of the other big banks have had — like Bank of America promoting Merrill Edge accounts — and has realized they can further monetize their client base,” says Grant Easterbrook, co-founder of the digital 401(k) platform Dream Forward.

There’s good reason behind the alliances. Robo advice has fueled an explosion of new discretionary accounts that topped 27 million in 2017, up from just 15 million in 2013, according to research from Aite Group. Assets on digital platforms are expected to top $1.5 trillion by 2021.

According to the consulting firm Novantas, 68% of bank customers are interested in opening an automated investing account, and 45% would do so with their primary bank, according to a survey of over 1,000 respondents. The top reason for doing so, respondents say, was for ease in transferring money between accounts.

HSBC is the first client on the Marstone platform, although a handful of other firms are in the process of coming on board, according to Hartigan.

That is an achievement in and of itself, says Will Trout, head of Celent's global wealth management practice.

“It’s noteworthy to see Marstone break past the partner model and go on to team up with a big global bank directly,” he says. “It’s a breakthrough. The task now will be to deliver the promised functionality. A great visual interface does not make a B2B robo.”

Not all firms are looking to team up with human advisors, however. The second-largest independent robo, Wealthfront, is set on developing a super robo that can directly deposit a client’s paycheck and handle all of his or her financial needs on a digital platform. The firm recently floated the idea of offering checking and saving accounts where customers can instantly transfer money between Wealthfront accounts, according to a spokeswoman.

“Acquiring may not be appealing for decision makers,” Easterbrook says. “If an expensive acquisition goes south, those decision makers are responsible for those funds.”

For many banks looking to attract digital investors, the decision to build in house or look to third parties becomes a major challenge. Take Citizens Bank, for example. The firm partnered with SigFig — instead of building a platform or buying another firm — for simplicity, says Peter Fishman, director of digital investment at Citizens Bank.

“We wanted to get into the market very quickly and there were solid solutions,” he says. “We looked for a company that not only accompanied good tech with culture, but we were looking for a deal structure that aligned incentives.” The firms were able to launch with retail accounts in under eight months, he added.

For legacy institutions, the appeal of partnering with smaller fintech firms comes down to speed, says Hartigan. “They want a company that can continue to innovate,” she says. “It’s not always easy to maintain that creativity once you have acquired the firm.” Marstone listed 15 employees on its latest Form ADV filed in April.

“Our overarching goal is to help make financial planning more human and banks want to do that as well,” Hartigan says. “It’s not so much disruption. Collaboration is winning right now."

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