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To net young investors, Ally pairs online banking and robos

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After Ally Financial snatched up online brokerage TradeKing for $275 million last April, it announced plans to enter the online advice arena. A month later, the Detroit-based banking and auto loan firm rebranded TradeKing as Ally Invest, its robo advice arm.

TradeKing President Rich Hagen kept his role in the acquisition, and now heads up Ally Invest. Having transitioned TradeKing into Ally Financial's platform umbrella, Hagen is focused on claiming millennial clients, arguing the combination of cheap, fast, mobile-focused online banking and digital advice is a differentiator for young investors in a crowded robo field.

Hagen spoke with Reinvent Wealth about Ally Invest's strategy to secure young investors and its plans to potentially hire CFPs as it moves to a hybrid robo advice model.

An edited transcript follows.

What's been the experience after being acquired by Ally?
We've spent pretty much the last 12 months integrating TradeKing into Ally and rebranding TradeKing. If you happen to have a bank account with Ally, we’ll show you side-by-side your bank account alongside your investment account and you can drill down or you can move money between the two. We’ve done a nice job at kind of integrating the client experience from an entity perspective.

We have two types of investment offerings. We have a self-directed platform. If you’re the hands on investor and you’re comfortable managing assets by yourself, we have a platform for you. You can trade stocks and options, ETFs, bonds and mutual funds, and we have the ability for futures trading embedded into that as well. It is a comprehensive self-directed platform, and if you don’t want to use a native application, our website will work just as well on a mobile device. We are designing with a mobile-first approach as we kind of build out our technology set. Sitting alongside that is the Ally Invest Managed Portfolio product, which is a traditional robo. That is a platform where we learn about your risk tolerance and your time horizon. We have a goals-based approach so we learn about your goal or goals and then from there we will recommend a portfolio of ETFs.

When we launched TradeKing we had a partnership with Morningstar’s Ibbotson Associates, and Ibbotson was the portfolio manager. Ally has a capital markets group so we replaced Ibbotson during the conversion with Ally Capital Markets. So we've reconstructed and reconfigured the portfolios over the course of the last few months. Now if you look at the entire Ally Managed Portfolio stack, from technology to portfolio management, it’s all internal Ally.

Have you found value being tied up with a bank?
What’s interesting is on the banking side, 55% of new customers are millennials. Our Ally Invest portfolio is over 25% millennial. When you think about things like speed and efficiency, a simple and easy to use and understandable platform, and value, these are all things that have become high priorities to that new millennial consumer. So we’ve positioned ourselves to really be in a good spot, with the ultimate goal of helping people make the most of their financial goals. We do that by making it easy for them to access and manage their financial services in one convenient place.

If I just want to have a brokerage account that’s fine. If I want to have an Ally Invest management portfolio, that’s fine. If I just want banking, that’s fine, too. If I want to have all three, well we’re going to make it super easy for you to manage your finances across all three of those platforms. That’s what we’ve spent a big part of our integration work efforts on, making sure that client experience is great. The dashboard currently shows investments, credit cards and mortgages right now, we’ll add loans shortly. The dashboard is your consolidated view and allows you to manage your different financial assets in one convenient place.

You have a platform that with very little overhead allows you to touch a customer in their different financial needs.
Another way we think about it here is about life stages. As you grow up, typically the first thing you get is a checking account. You're about to enter college and you’ve got to start managing your money. Well, we have a checking account and banking offering for you that’s all digital. As you start to save money, you need to invest it. Some people feel good about investing on their own, some need some advice and guidance; well, we offer both. You need to establish credit and have a credit card, well we have that too. And then as your money grows and as you get older, you are going to need a mortgage, right? So we’re there for you as well.

To capture that young investor, then, get them into a bank early and then move them up?
We want to be the advocate for the customer. We want to play a role where they want us to play a role. Culturally, the theme of Ally advertisements is, 'Do it right.' That’s a big statement to make, so when we’re building out products and interacting with employees here, we do it with that philosophy in mind. As we build out the product, the goal is making it convenient for people to manage their financial lives with Ally. And that’s really been our focus. The advisory business is a piece of that. There are trillions of dollars that are going to be transferred between generations and that has started. So positioning to help people who are going to be recipients of that transfer is key.

I would also add when I look at some of the interesting investing trends that are out there, I think there’s a common misperception that millennials aren’t thinking long-term and they’re not savers and investors. I’ve seen data that shows otherwise, that 62% are saving more than 5% of their income. Remember as an age group, the top end of millennials is approaching prime income generating ages. This is a group that has grown up through the great recession and they know the consequences of not planning for a rainy day.

How do you view the competition in digital advice, which now spans from microinvesting to Vanguard? Where do you want to be within that mix?
How we’re positioning ourselves is we feel with Ally Invest sitting next to Ally Bank, it's a great foundational position to be in. We're building out different trading applications, whether it’s self-directed or managed, and seamlessly integrating them with the bank. On the self-directed side we charge $4.95 a trade, and on the advisory side we charge 30 basis points. If you look at the banking side, they have high yield CD rates and savings rates. Putting those value propositions next to one another we feel is a good place to be and a differentiator.

In terms of where we’re going, we’ll continue to build out both the self-directed and managed portfolio product. We’re looking at some neat things around tying Monte Carlo simulation to the goals targeting so we could help people plan better based upon the goal that they’ve put out there. We are also working on an income portfolio set, strategies that help folks in the later stage of life, and a retirement calculator that will tie in nicely. A lot of competitors have tax loss harvesting. We don’t have that yet, but we’re going to add that. In addition to that, we believe, a tax optimized portfolio set could fit side by side there, so the portfolio management team here at Ally is doing some work on the tax optimization side, in addition to tax loss harvesting.

Are you looking to hire CFPs to man phones? A number of firms are looking to beef up their advisor force that way.
Absolutely. Today, the managed portfolio product is supported by licensed registered reps, Series 7, 63, 24, FINRA regulated licenses in two call centers, one, in Charlotte, North Carolina, and another one in Ft. Lauderdale, Florida. The staff that we have are available 24/7 to answer questions regarding the managed portfolio process, the recommendations made, the ETFs we use, et cetera. That’s where we are today. As we continue to build out the product more, I do think we'll become more of a hybrid where you have a CFA professional able to answer more sophisticated financial planning questions, in addition to how we’re supporting our clients today. So I do think a move to a more hybrid model is something that we’re looking at now.

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