A debit card for clients? Major RIAs embrace bank perks

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Debit cards, high-yield savings accounts — even access to ATMs.

Independent advisory firms are beginning to look a lot like their Wall Street counterparts, offering a buffet of services that cover banking and investing needs from checkings and savings to brokerage accounts. The recent moves by some of the biggest RIA firms like Carson Wealth and independent robo advisor Wealthfront are intended to help cross-sell products to existing customers and keep more client wallet share on their platforms.

Carson Wealth, for instance, is one of the first big advisory firms to offer checking accounts with direct deposit options and access to tens of thousands of ATMs. Through a partnership with the digital banking provider Galileo, Carson’s RIA clients will now have traditional bank account offerings including a Mastercard-branded debit card, online bill pay, mobile check deposit and ACH transfers, among other features.

Some in the industry, like Wealthfront CEO Andy Rachleff, have long envisioned a one-stop shop for financial services where clients can automatically deposit their paychecks, pay bills, top off emergency funds and route money into investing platforms.

Carson’s direct deposit and debit card could be a significant step in that direction. “This presents an opportunity for advisors to capture assets and a greater share of wallet that traditionally have been untouchable,” says CEO Ron Carson in an email. “It’s one more way advisors can further entrench themselves into helping manage their clients’ financial lives without them needing another service provider.”

Other digital investing platforms have launched cash products where clients can earn more on assets than in traditional savings account. Marcus by Goldman Sachs offers a savings account with a 2.25% APY. Wealthfront markets a savings account with a 2.29% rate, which has reportedly brought in as much as $1 billion in assets since its launch in February.

The Carson product offers a high-yield savings account with an interest rate of 2.20% and a checking account with an interest rate of 1.24% APY, according to a release.

“The integration of banking and financial services is getting closer,” says Darin Shebesta, a financial planner with Raymond James in Scottsdale, Arizona. “There’s a lot of money left on the table at the big banks that’s not paying anything.”

With client relationships at the larger banks feeling less than personal, banking services at RIAs would solve two problems for clients, says Dennis Nolte, a financial advisor with LPL Financial in Oviedo, Florida.

“The advisor now gets to provide more tangible value for the fee he or she is charging,” Nolte says, adding that advisors can also start evolving to compensation models other than the traditional asset-based fees.

As fiduciaries, RIAs will also be held to a higher standard of customer care than other institutions when dealing with their clients’ banking needs, Carson says. “Clients will have full transparency on the rate they are receiving in all of their accounts by working with their advisor,” he says. “The client’s interest will remain first by delivering higher interest rates on accounts that have typically paid much less.”

Pairing investment and banking accounts also gives advisors a deeper look into the total wealth of a client, and potentially a more holistic view of their overall needs. Armed with additional information, advisors can learn more about a client’s spending habits, says George Gagliard of the Lexington, Massachusetts-based Coromandel Wealth Management. But he also points out that account aggregation tools like Yodlee, MX and ByAllAccounts, among others, are already available to advisors.

“I can’t really see it as a way to bring in more AUM, and in good conscience I could never see charging for managing accounts primarily intended for cash expenditures,” Gagliardi says.

But Will Trout, senior analyst at Celent, sees the bank-product land grab by investment advisory firms as having significant benefits to advisors and clients alike.

“The move will likely have reverberations across the RIA space,” says Trout. “No need to deal with the high fees, overlapping propositions and product centricity of the big boy incumbents like the largest banks and wirehouses. And they’ll be able to do it within the quiet confines of their RIA.”

In fact, financial advisors hope to compete for the $10 trillion in low- or no-interest U.S. bank deposits, according to data compiled by Galileo. For example, the Wealthfront product offers an interest rate that’s 22-times higher than the national average, according to a release.

In turn, banks have vied for larger chunks of the wealth management market. Goldman Sachs recently bought United Capital for $750 million with plans to expand its footprint into mass-affluent wealth management. JP Morgan is another forerunner, offering digital wealth capabilities alongside traditional banking services, says Dennis Gallant, senior analyst at Aite Group.

“You don’t have to look too far to find banks utilizing robo advisors and hybrid capabilities,” Gallant says. “You’re trying to take away any reason for your competition to cross sell to your clients.”

The new RIA offerings could look particularly attractive to aging investors, especially those in or nearing retirement, who can no longer rely on a regular paychecks from their employer going directly into their bank account, Gallant says. “Retirees are getting a synthetic paycheck or income distributions from their investment accounts, so adding banking services makes perfect sense for financial advisors and is an added convenience for investors.”

Another possible edge for RIAs may be the positive trust level engendered by deep-seated client-advisor relationships.

The problem is that retail banking clients do not generally leave legacy institutions despite intentions to switch. Only 4% of customers moved to new banks in the past year, according to a 2019 study by J.D. Power. The more than 84,000 respondents cited record high levels of innovation and improving customer service at some of the larger firms, which resulted in high satisfaction within the banking industry at large, according to the report.

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“Personally I don’t think banking is the next great innovation for our industry, but I can see how having it under the same roof might make things easier for the client,” says Sean Williams, a financial advisor with Sojourn Wealth Advisory in Timonium, Maryland. “I don’t know how much it’s about the client’s convenience or an additional profit center for a larger RIA.”

On the other hand, advisors tend to have long-standing relationships with clients, which might make the transition to a wealth management platform with similar banking products a little easier, Gallant says.

“The financial advisor tends to be the QB of the consumer’s financial needs,” he says. “Especially with planning-oriented advisors, there has been more and more consolidation of offerings to grab more client wallet share.”

The wealth management industry has seen a significant push toward financial planning in recent months. In one of the largest tech acquisitions of the year, Envestnet purchased MoneyGuidePro, a leading financial planning technology provider, for $500 million in March. And, both Carson Wealth and Edelman Financial have dropped their FINRA licenses and their affiliation with broker dealers.

“That’s where we’re headed,” Gallant says. “It’s peace of mind.”

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