Robo alert: The banks are coming!
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13 January 2016William Trout
Given their mass market and mass affluent orientation, banks would seem obvious candidates to deploy automated investment platforms. After all, fee income remains the holy grail for banks, and robo-led delivery represents a way around antiquated systems, channel conflict and other bank shortcomings. Yet banks have stayed on the sidelines to date. Several rumored bank robo tie ups (SigFig and Bank of the West; Motif Advisors and U.S. Bank) have foundered in their hype, and Trizic, the much vaunted provider of robo technology to banks, has gone silent. Indeed, the cautious mindset of US banks has allowed a Canadian institution (BMO Bank of Montreal) to introduce the first bank robo in North America. In this context, the BBVA Compass partnership with FutureAdvisor, the BlackRock owned automated investment advisor, is significant. Note that this deal is strictly a commercial agreement, not an investment (like the one made in 2014 in Personal Capital by BBVA Ventures, the venture arm of the parent company BBVA Group). In many ways, it calls to mind the short lived alliance between Fidelity and Betterment. Does the BBVA Group (whose chairman Francisco Gonzalez, has stated that he views the future of his bank as a software company) want to learn the robo ropes, in order to build one on its own? The bank certainly has the resources to do so. Or is this a synergy driven move like the BBVA Compass tie up with payments provider Dwolla? Time will tell. Clearly, the bank must find way to reconcile its digital ambitions with its trust heavy wealth management operations. While adding a low cost robo option to its full service brokerage menu gives the customer more choice, plugging in FutureAdvisor is just a first step. I’ll talk about the challenges banks face in integrating automated investment platforms in my next post.