Wells Fargo drops robo advisor price, putting pressure on competitors
Wells Fargo significantly dropped the price of its digital advice platform — which includes access to a human advisor — to get emerging affluent banking customers to open accounts with its wealth management business.
The price undercuts competitive products from both startups and other financial institutions, putting new pressure on digital advice fees, which some think could follow trading commissions in a race to zero.
Wells Fargo Advisors reduced the annual fee of its hybrid robo Intuitive Investor from 0.50% to 0.35%, and brought account minimums down from $10,000 to $5,000. Wells Fargo will shave an additional five basis points off the advisory fee if clients link their robo account to Portfolio, Wells Fargo’s premium checking account program. It’s the first cost change since Intuitive Investor launched in 2017.
“Services that offer a hybrid approach with access to a human advisor can navigate both the emotional challenges of investing during COVID-19 and the physical restraints,” says Michael Church, founder and CEO of digital advice startup Nest Egg. While banks have been moving in this direction already, Church believes the crisis is accelerating their movement.
The move has less to do with the COVID-19 crisis, the ensuing market volatility or the firm’s first quarter earnings dip, and more to do with the new era of zero-fee trading, says Joe Nadreau, Wells Fargo Advisors head of independent brokerage and platforms services. The company has been discussing a cut since the third quarter of 2019, when Charles Schwab kicked off a chain reaction that brought trading commissions to zero across the industry.
When Wells Fargo eliminated ETF and stock trading commissions from its DIY investing platform, WellsTrade, the firm said it would focus more on diversified portfolios and financial advice — and recurring revenue from that business.
Wells Fargo’s goal is to become the sole institution serving a client’s full range of financial needs. Mass and emerging affluent clients in the consumer bank want to start investing and Intuitive Investor can provide that onramp, Nadreau says.
But the previous price point was too prohibitive for newbie investors, according to Nadreau, especially when IRA contribution limits make it difficult to reach the $10,000 minimum. The bank too often saw prospects drop out of the account opening process and take investing dollars elsewhere, hesays.
Nadreau hopes lowering the barrier to entry will help new investors feel more comfortable about keeping assets with Wells Fargo, and improve the company’s lower scores on studies like J.D. Power’s self-directed investor satisfaction study.
“For a lot of these people, it’s really their first foray into investing. They are a little bit gun-shy until they get comfortable with it,” says Nadreau.
Intuitive Investor’s new pricing makes it not only one the most affordable options for investors looking for automated investing with access to human advice, it also beats many digital-only options from other financial institutions, according to Backend Benchmarking research analyst David Goldstone.
“Wells Fargo is staying ahead of the curve with this recent fee reduction. [Thirty-five basis points] is quite low for an offering that has access to live advisors,” Goldstone wrote in an email. “Their product is priced at the level of many other digital-only products of major competitors, but also includes live advisors.”
For example, Morgan Stanley Access Investing and JPMorgan Chase’s YouInvest Portfolios both carry a 35 bps fee, while the former requires a $5,000 minimum and the latter just $500. The Wealth Builder robo launched by Citigroup in January only requires $1,500, but charges 55 bps unless the client holds at least $50,000 with the bank.
None of these provide access to a human advisor.
Bank of America makes advisors available on Merrill Edge Guided Investing for investors with at least $20,000 invested and charges 85 bps. Betterment has advisors on its premium service at 40 bps for investors with $100,000.
Lower-fee options like Vanguard Personal Advisor Services and Charles Schwab Intelligent Portfolios Premium carry higher minimums. The closest comparison is US Bank’s Automated Investor with digital investing plus a human advisor for a $5,000 minimum and 0.24% fee, Goldstone said.
“This is Wells Fargo making adjustments to be highly competitive with what else is available out there,” Goldstone said.
Fee competition is nothing new in the robo-advisor space, but Goldstone sees Wells Fargo escalating pressure on a model already operating on “razor-thin margins.” The next salvo could come from Vanguard, which is currently beta testing a purely digital robo that will charge just 15 bps with a $3,000 minimum.
“A digital-only robo advice product is highly scalable and we may see these products eventually have management costs reduced to zero over time,” he said.
Nadreau says Wells Fargo isn’t planning a digital-only version of Intuitive Investor with lower fees or minimums.
“At some point with a product like this, people should probably stay in a deposit product … as opposed to a full diversified portfolio,” Nadreau says. “Those that are purely robo, if they are beating us on price, so be it. We believe in having a human.”
While Nadreau insists COVID-19 did not factor into the price drop, others think the crisis offers a prime opportunity to win clients. Betterment, Wealthfront and TD Ameritrade’s Essential Portfolios have all seen an uptick in new account openings among younger clients who see the sell-off as a buying opportunity.
However, Anders Jones, CEO of financial planning firm Facet Wealth, says traditional firms like Wells Fargo are still overlooking what consumers really need during this crisis: dynamic financial planning that takes into account every aspect of their financial lives.
“Automated investing, no matter how you slice the fee structures or minimums, is not the panacea that legacy companies think it is,” Jones says.