Robo Advisors Put Pressure on Bank Wealth Management Fees
For all the talk about how robo technology will help advisors, it remains a double-edged sword.
During a panel discussion at the INVEST Conference in New York, speakers agreed that the impact of the new breed of automated advice providers will cause banks to reduce the fees they charge for wealth management.
"I do believe that the robo advisor is going to have an effect on pricing. It is going to cause spread compression in our business," said Robert Corsarie, senior vice president and regional investment manager of Fifth Third Securities. "You're going to be forced to be more scalable. You're also going to be forced to be more nimble."
The 150 to 200 basis points that banks currently charge, he said, are likely to slowly but steadily go below 100 basis points.
Mark Jordahl, president of U.S. Bancorp Wealth Management, agreed that the new technology providers will put pressure on fees, but saw a silver lining for bank wealth management businesses. He argued that while banks might have to lower their fees, their cost of delivery would fall and their advisors would be more productive. "I would say net-net," he said, "you are way ahead of the game after all that."
Both Jordahl and Corsarie were loath to lowering the minimum account size as a result of the new digital competitors. In fact, Fifth Third's minimum of $50,000 is unlikely to change, said Corsarie. "When you take into account the advisor's time, you have to think long and hard to even take an account at that level," he said.
With so much at stake, the industry is taking the new automated advice upstarts seriously, according to Jordahl. Financial institutions are talking to robo technology providers to see what types of automated technology might serve their clients.
"Change is afoot," Jordahl said.
U.S. Bank, for example, is in discussions with a number of firms about their aggregation capabilities and ways in which to ease the account opening process and keep track of "held-away" assets. He did not disclose which providers the bank was working with, saying only that discussions are ongoing.
Bank wealth management businesses that combine "what the advisor does" with a robo offering will be winners, Jordahl said.
Indeed, both Jordahl and Corsarie agreed that the new technology will help advisors enhance the all-important "client experience." The technology will shrink the kinds of things advisors do, Jordahl said, but that's good news.
"If you're a great advisor, you should embrace this because it's going to free you up to have more consequential conversations with clients and have more clients," said Jordahl.
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