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U.S. Bancorp aims to catch first-time investors with changes to robo advisor

To win over millennials, U.S. Bancorp Investments is cutting costs for clients of its robo advisor.

The bank slashed management fees for its robo, Automated Investor, to .24% from .50%. The firm chose to cut the fee by more than half so it would equal 20 cents for every $1,000 invested a month, according to a spokeswoman.

In addition, the minimum requirement was lowered to $5,000 from $10,000.

U.S. Bancorp made the changes to make investing more accessible to millenials and first-time investors.

Automated Investor was launched in 2018 to help clients meet goals, such as saving for retirement or a home, according to the bank. The platform automatically adjusts client portfolios as market conditions fluctuate.

Pedestrians pass in front of a US Bancorp branch in downtown Chicago, Illinois, U.S., on Tuesday, Jan. 9, 2018. US Bancorp is scheduled to release earnings figures on January 17. Photographer: Christopher Dilts/Bloomberg.
Pedestrians walk past a US Bancorp branch in downtown Chicago, IL on Tuesday, January 9, 2018. Photographer: Christopher Dilts/Bloomberg *** Local Caption ***

The changes come amid fierce competition between digital advice platforms. Client assets on robo-advice platforms are projected to reach $1.26 trillion by 2023, according to research firm Aite Group.

Wealthfront, for example, charges an annual fee of .25% and requires a $500 minimum investment. Personal Capital, which just announced it would offer savings accounts, requires a $100,000 minimum investment with its fees starting at .89%. Betterment, meanwhile, charges .25% but has no minimum to begin using the product.

Among banks with a robo advisor platform, Wells Fargo sets its minimum at $10,000 and charges a .50% fee.

Fifty-four percent of people don’t know how to invest or make changes to their investments, U.S. Bancorp found in a recent survey of 1,000 consumers nationwide. And many aspiring investors don’t believe that they have the time or the money to seek professional advice.

“Auto investing is a core solution for them,” Gailyn Johnson, chief operating officer for U.S. Bank Wealth Management says.

As clients acquire wealth and their investment needs become more complex, switching to a financial advisor may be a better choice. “It's about the ability to have their first investment and for us to be there from the beginning as they become more affluent,” Johnson says.

Minneapolis-based U.S. Bancorp Investments has over 36,000 client accounts totalling over $8.6 billion in AUM, according to its most recent SEC filings. The bank provides retail brokerage, investment advisory services, financial planning and insurance in 25 states and online.

Finding investors who are actively seeking automated advice may be challenging. The bank’s survey found that 72% of respondents are not familiar with robo advisors, according to its survey. “It’s new in the industry and people don’t understand it, and it's up to us to explain the benefit of it,” Johnson says.

Many advisors have yet to embrace the technology.

In Financial Planning’s 2019 tech survey, only 16% of advisors say they use robos as a tool with clients. Even fewer advisors believe that robos will change the wealth management industry. The number of advisors who think digital investment platforms are transformative decreased by more than 10 percentage points to 27.5% in 2019.

U.S. Bancorp says it’s not concerned about the relatively low adoption of robo advising platforms because the technology is still new in the industry and can be a “game changer in do-it-yourself investing.” The investing public will learn more about robos over time, Johnson says.

The bank will begin promoting the product to its current clients and advisors.

“We’re putting the word out,” Johnson says.

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