‘Nothing stopping’ Google from entering wealth management
Advisor Tom Balcom doesn’t feel threatened by his clients’ use of budgeting or savings apps. He is unconcerned about Google’s announcement that it may offer a consumer checking account. But he is a little nervous about how comfortable clients have become with an array of digital financial tools, and what that might mean for his livelihood.
“I would not be shocked if Google offers more planning,” says Balcom, the founder of 1650 Wealth Management, an RIA in Lauderdale-by-the Sea, Florida.
For many advisors, though, it’s not if, but when.
Even now, technology allows firms to seamlessly partner with broker-dealers or independent advisors to offer managed investment accounts, lending products, checking accounts and retirement vehicles. At the same time, other barriers between traditional financial services and wealth management are breaking down.
Apple, for instance, launched its credit card in March. In November, Google said it would look to partner with Citigroup to offer checking accounts sometime this year. While the firms may use the accounts to collect client data and peek more deeply into customers’ behavior, they are also seen as taking big steps toward the traditional purview of wealth management.
“It’s obvious from where I sit that big tech will want to make the jump,” says Jud Mackrill, chief marketing officer at Carson Group. “A managed account solution is going to come along with one of these product launches.”
These latest offerings are an unwelcome reminder of an ever-present question on the minds of wealth managers: Will the FAANG companies — Facebook, Amazon, Apple, Netflix and Google — as well as other big tech companies make a land grab of services historically provided by financial services? If so, at what cost to traditional RIAs?
“Potentially, if Google got cleared to conduct a brokerage business, they could move in any direction they want,” says Greg O’Gara, a senior research analyst at Aite Group.
“Essentially, nothing is going to stop the democratization of investing through technology, and once one of these [tech companies] makes an imprint on the broker-dealer landscape, the growth prospects are very, very good,” he adds.
Google’s entry into finance can be traced, in part, to recent efforts by fintechs to evolve beyond investing and advice. And, just as those partnerships have rapidly grown, there is little to prevent the search engine giant from teaming up with a broker to launch a wealth management pilot.
“We’re exploring how we can partner with banks and credit unions in the U.S. to offer smart checking accounts through Google Pay,” says Google spokesman Craig Ewer. In the United States, more than 2,000 banks already offer card transactions via Google Pay, Ewer says.
Last year, a host of digital wealth managers served up a buffet of new financial services options including banking and lending.
Betterment and many of its competitors added cash products with annual percentage yields sometimes as much as 2% more than traditional accounts at incumbent banks. (The yields depend heavily on prevailing interest rates.
Wealthfront advertised its account as the highest-yielding in the market when it announced in early 2019, and says that it attracted $1 billion in assets as a result.
The most successful may be from micro-savings app Acorns, which was one of the first to tack on additional services and now boasts checking, debit cards and retirement savings vehicles with 6.2 million accounts and $1.7 billion in AUM, according to the firm. Its retirement product, Acorns Later, built up 170,000 accounts in its first two months, according to Acorns CEO Noah Kerner.
The business strategy of partnering with financial institutions has essentially been mapped by smaller fintechs and has proved successful. Google is now emulating that model to launch its checking account slated to pilot this year. The question may now become not whether tech giants will enter wealth management — but what can possibly stop them?
Carson Wealth Management became one of the first big advisory firms to offer checking accounts to its clients last May.
Through its partnership with the digital banking provider Galileo, Carson’s RIA clients have access to a Mastercard-branded debit card, online bill paying, direct deposit options and the ability to use tens of thousands of ATMs, according to the firm.
“We view Amazon as the competition,” Ron Carson, CEO of Carson Group, told Financial Planning after Apple announced its credit card launch in March. “Whenever they decide to get directly into our business, we have to be prepared. They haven’t yet because there is just so much low-hanging fruit. But they are coming.”
TOO BIG TO SUCCEED?
Ominously for independents, a majority of investors who are considering switching financial services providers said they would think about banking with tech companies such as Facebook, Google or Amazon if they could, according to a recent survey by MX, a digital banking technology provider.
Almost 60% of the survey respondents said they would consider depositing a paycheck with a major technology company.
“Cash is a very easy commodity to generate income on, and once you attract clients, you can cross-sell anything,” O’Gara says.
“There really is not much that would stop them from building out a broader investment platform. With the right regulatory oversight, nothing is stopping them,” he adds.
It’s not a foregone conclusion, however. Google had a similar product, Google Compare, that compared different financial products for consumers, which potentially could have shifted into robo advice. It was shuttered in 2016. “Google has a bit of attention deficit” disorder, Mackrill says. “They’ll try something new and have no problem killing it.”
The fintech partnerships have one important advantage: the ability to leapfrog regulatory hurdles. Many RIAs cite regulation as a top barrier preventing FAANGs from entering wealth management.
“The team at Google Pay has been working for years to help make money simple and accessible for our users, in close partnership with banks, credit unions, and the existing regulatory and financial systems,” the Google spokesman says. “We believe our partners’ regulatory and financial know-how is a great complement to our experience in building helpful tools and technology for our users.”
WHAT ABOUT ROBOS?
What’s stopping Google from offering an off-the-shelf retirement product? The answer is, not much.
“If I were a robo advisor, I would certainly be worried,” says 1650 Wealth Management’s Balcom. “Amazon is probably not far behind.”
However, the robo advice industry is also a crowded soup of new entrants, and the initial results haven’t been as promising as some had hoped.
Major competitors like Schwab and Vanguard have their own megalithic robo platforms, and many of the FAANG companies may hesitate to enter a highly regulated market with entrenched competitors, says Eric Walters, founder of SilverCrest Wealth Planning, an RIA located in Greenwood Village, Colorado.
Another potential roadblock is the current economics of financial advice. Pricing pressure caused by the race to zero commission trades coupled with high customer acquisition costs has shrunk margins for many digital wealth management firms.
“They would rather leverage their ubiquity, control of consumer data and iconic cultural status to facilitate the flow of money — including via partners like Citigroup — to the extent they become irreplaceable components of the financial services ecosystem,” says Will Trout, a senior analyst at Celent.
Even if advisors don’t expect to face direct competition for clients from big technology firms, one could well offer a new platform, like a wealth management integration, that RIAs might then adopt, says Linda Erickson, founder of Erickson Advisors, an RIA in Greensboro, North Carolina.
“I can’t see [big tech firms] replacing my money management skills,” Erickson says. “Where money management is a commodity — not personalized — maybe they will develop a better approach than robo advisors. I doubt client relationships will be entirely replaced by artificial intelligence.”
Still, automated advice continues to defy the industry’s initial growth expectations. Assets under robos are expected to grow to over $1.26 trillion by 2023, according to a study by Aite Group.
In fact, robo advice was listed as one of the top technologies that would change wealth management in the course of the next three years, according to Financial Planning’s latest annual Tech Survey. Robos beat out other high-profile technologies like artificial intelligence and advanced risk profiling.
RESISTANCE IS UNWISE
Whether or not Google ends up getting into the wealth management game, there are tangible steps RIAs can take to mitigate the potential risks. The first is to find additional value beyond what a FAANG robo advisor would provide clients.
“At the end of the day, advisors shouldn’t be focused on the tech companies coming in,” Mackrill says. “They should be focused on what they can actually control.”
Advisors shouldn’t be focused on the tech companies coming in. They should be focused on what they can actually control.
Advisors will need to provide value to their clients through comprehensive financial planning or a unique investment strategy that is not available through automated platforms, Mackrill says. Some good places to start include adding tax services, financial planning or estate planning.
Ultimately, the human element will be the advisor’s secret weapon.
“The future of advice looks a lot more like therapy than anything else,” Mackrill says.
RIAs will have to open their eyes to the potential risks from tech disruptors, because technological transformation will happen, he says. It might not be the FAANGs that come into the advice marketplace, but they represent a larger ideology. Change is coming — and RIAs have traditionally been resistant to change.
“It’s certainly a growing problem,” Mackrill says. “And looming larger by the day.”
—Additional reporting by Suleman Din