Banks must look before they leap on the robo bandwagon

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16 July 2015
William Trout
As noted on this blog and that of the WSJ, banks are ready to jump into the robo-advisory business. Like others in the wealth management firmament, they’ve gone in less than a year from “what is this robo stuff?” to “how do I get into the game?” While there is a “me too” element at play, the deployment of automated investment advisory platforms makes sense for most banks. After all, fee income remains the holy grail, and robo-led delivery represents a way around the traditional bank pitfall of channel conflict. I give credit to those banks moving forward, and I don’t want to play the doomsaying role of a Cassandra. But banks need to triple check their assumptions about robo, or risk serious buyer’s remorse. Banks can kick off the internal gut check by asking themselves: Will robo help us reach the underserved customers who are the natural users of this platform? The question is tough but fair. Over the last five years, banks have done an outstanding job of alienating their Millennial customers, who view them in the same pewter light they view airlines and telcos. The older, mass affluent customer is no more likely than the Millennial to swoon before the robo song: he’s less tech savvy and in any event, his natural investments home is in online brokerage. eTrade won’t give him up without a fight. To succeed in this uphill battle, banks need to understand robo for its value in the multi-channel bank context. Bank of America will never be Wealthfront, nor should it try to be. The point is that banks must treat automated investment advisory not as a short-term profit center, but as a long term opportunity built on harnessing data and people resources. I’ll discuss this idea in a later post.


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