It started with one query, then several. Now it’s rare that Joshua Knauss, a financial planner at Lewisburg, Pennsylvania-based Omniwealth Group, doesn’t have clients ask him about banking services.
“Advisors are fielding these questions all the time,” Knauss says.
It’s a far cry from the traditional financial planner model, where clients expected portfolio management as well as advice on retirement, taxes and college planning. To be relevant now, advisors are increasingly expected to offer insights into cash management, banking and lending products.
“The future of advice is more than offering investment management,” says Anton Honikman, CEO of MyVest, an enterprise digital wealth management software firm owned by insurance giant TIAA. “It’s about focusing on debt and savings together as elements of one’s financial life. Banks are in a much better position today than RIAs are to embrace that full financial life story.”
While larger RIAs and digital-first players like Wealthfront have already embraced these services — investing heavily in integrated wealth management platforms, rolling out banking products and embracing machine learning and big data — smaller firms have been slow to jump aboard. But to ignore the trend means ignoring their clients’ desires. How well advisors adapt to new client demands will determine their sustainability.
“Our customers are actually saying: ‘Do more for me,’” says Jay Shah, CEO of the hybrid digital investment platform Personal Capital. “With all this ineffectively deployed cash out there, it allowed us to build these solutions really at the request of our clients.”
RIAs such as Carson Wealth have taken steps toward claiming their clients’ bank accounts, as well as their investment portfolios and planning needs.
Consumers have been slow to adapt to robo advice because they are nervous about trusting such platforms with their investments. However, clients are much more open to digital banking. More than half (58%) of Americans would consider banking with tech companies with no financial services background, according to a study by the Center for the Digital Future at USC Annenberg.
“It’s naïve to think about this development as simply about chasing scale,” Honikman says. “It’s what scale brings.”
Online account offers hover near 2% in annual interest rates, while traditional savings accounts average less than .09%. Some traditional banks are offering higher-yield savings accounts in an effort to compete, but they often have restrictions and less-than-ideal terms. The blooming of online banking options has clients wondering if they should switch, Knauss says.
For advisors who embrace the potential to provide these services, it can be a natural next-generation service offering. Bundling financial products in online advice platforms parallels the industry trend of slashing management fees for funds to zero and pricing commissions on transactions at next to zero. And unlike the first robos, these platforms are staffed with humans and are smart enough to take action on behalf of the client.
“It’s already happening,” says Pamela Capalad, CFP and founder of the New York-based financial planning firm Brunch & Budget. “For my clients, we’ve already seen the change,” she says. “It’s going to affect my business.”
The coming changes might not necessarily spell doom for advisors, Capalad adds. She doesn’t charge her clients a fee on assets, so in her case, the more banking and investing options available to her clients through third-party firms, the better.
Time to branch out?
For those who have focused on investment management, and even those who employ a planning approach, the coming shift means having to broaden the practice to include advising on cash management, banking and lending products in detail.
But in the long term, the independents will have to contend with platforms that squeeze margins with low-priced, all-in-one offerings, packaging wealth management almost like a big-box retail product.
“In a way this Walmart [for financial advice] already exists,” says Helen Yang, founder and CEO of Andes Wealth Technologies, a behavioral finance software company.
“Most companies are becoming more and more similar. What people get from RIAs is a relationship, but that might not be enough anymore. What they really want are insights into their financial lives that they can’t get anywhere else.”
Putting together comprehensive insight into a client’s financial life is an act that now begins with analyzing every bank account transaction, explains MyVest’s Honikman.
Grounded in the traditional banking concept of owning a client’s wallet, the all-in-one digital offering disrupts the need for a traditional banking and investment account setup.
“In the traditional world, things are siloed and driven by physical limitations and human limitations,” says SoFi CEO Anthony Noto.
“In the digital platform, the smartphone gives the opportunity to bring together the transaction capabilities of banking with the digital advice capabilities. Human beings and physical limitations are premises that no longer have to be considered.”
The shift brought by all-in-one, data-and-AI powered digital platforms is harder to dismiss than the advent of one-note robo advisors, planners and advisor-tech executives acknowledge. These digital platforms can now offer better returns with more liquidity than banks, says Jacqueline Ko Matthews, CEO of planning software company Investment POD.
“That’s a powerful option,” she says. For Matthews, the trend toward cash management means advisors will definitely want to consider brushing up on alternative forms of cash investments. Other short-term options — CDs, Treasuries and high-yield bonds — are good places for advisors to start.
“It’s going to be hard to stay only a financial planner or only an asset manager,” Matthews says.
A digital platform with aggregated accounts, including brokerage and banking, has the added advantage of demonstrating the entire client financial situation, she adds.
Advisors should be finding the most lucrative places to store cash in any environment, says Lisa Kirchenbauer, an RIA based in Arlington, Virginia, with Omega Wealth Management. Her clients are invested in money market funds and online cash solutions such as MaxMyInterest, as well as online retail banking platforms including Ally and Marcus. Community investment notes can also be purchased through custodians, she says.
Still, cash tools are not ideal for every client, says Kim Gaxiola, founder of Tech Girl Financial, an independent advisory firm managing roughly $50 million in assets based in San Jose, California.
Gaxiola’s mostly millennial clients, for example, should be more concerned about investing for growth instead of keeping extra cash on hand. “When I look at my millennial clients and where they are invested,” she says. They have too much in cash investments.”
Not just about saving 1%
Ultimately, the success of a client in retirement isn’t about saving an extra 1% on cash reserves — but how investments are allocated, Gaxiola says. “When looking at long-term investments, cash is not the first place you’re going to go.”
There is a utility to the new banking offerings, Andes Wealth’s Yang says, noting she ultimately chose a digital-first option as a high-yield savings account for her 18-year-old son. After initially reviewing products from Betterment and Wealthfront, Yang settled on SoFi because it offers access to high-yield savings accounts (currently yielding 1.6%) with ATM access, debit and checking accounts and wealth management services.
Fees were one of the deciding factors, she says. “One percent advisory fees now look huge. I was always wondering why people would pay that much.”
SoFi is just one of several Silicon Valley companies involved in concerted efforts to remake banking, partly based on the lessons learned and technology honed over the past decade in automated investment advice. SoFi itself has multiplied its offerings, expanding beyond digital lending into hybrid digital investment advice and savings.
“We’re leveraging the mobile phone to bring it together in one complete solution set, as opposed to the mortgage department, the credit card department, the checking account department, the savings account department, the investment department …” Noto says. “[Now] there is no department.”
Data as a digital experiment
The digital experience has changed rapidly since the first personal finance management and robo advice tools came out, Honikman says. Data aggregation means companies can now do peer analytics, which wasn’t happening a decade ago. For instance, software programs can examine a client’s finances and determine what their household debt balance is compared to similar clients, according to Honikman.
“Financial institutions are using data as a digital experiment to influence behavior. They are moving away from the monolithic financial plan to bite-sized chunks that drive improvement, rather than an idealistic outcome.”
He adds, “It’s nudging people in the right direction, making decisions in their own best interest. They can actually implement on your behalf, using intelligence, call it whatever, to examine your savings each month, your spending each month, and learn from that to improve financial outcomes, whether that’s sweeping $5 into investment account, or canceling a subscription.”
Personal Capital is recognized for building its platform around this perspective and for pioneering digital tools that allow a client to see all their finances in one place.
“When we think about how banking comes into that, it’s a piece of the whole,” Personal Capital’s Shah says. “It starts being less about your portfolio and your asset allocation. Rather, here’s your entire financial life. Here are your cash flows across your entire household. Here are some short-term decisions you can make for better long-term outcomes.”
Shah points out what spurred his company, and competitors, to get into high-yield savings accounts was the volume of cash in client holdings being put to very little use.
“We have over $60 billion in cash sitting on our dashboard, sitting in low-yield savings. Just like when you X-ray a client’s existing portfolio strategy, we just do the same thing with cash. It’s such a natural extension. It’s not something we stitch on top, it just allows us to go deeper into the picture.”
Independent advisors aren’t being left without technology options. In addition to startups offering new advisor tools and platforms, such as Betterment — which is openly billing itself as a custodian — the largest custodians and technology services players, including Schwab and Envestnet, are also in a race to become digital hubs for independent advisors. Schwab’s impending multibillion-dollar acquisition of TD Ameritrade is just one example of the stakes.
But there is mistrust among advisors who see the scaled, all-in-one digital advice solutions that custodians are also building, and wonder if they are co-operating with their competition. Knauss says he is unsure about the ultimate fate of high-yield savings accounts and other banking options that are constantly popping up on financial advisory platforms. Current economic conditions, such as historically low interest rates, have helped to make such partnerships profitable.
“I’m not sure I’m sold that people are going to find these products attractive,” Knauss says, adding that the process will have to be fairly friction-free in order to convince clients to go through another onboarding process.
“When rates become more normative, this whole conversation sort of goes away,” Knauss adds. Still, the allure of a features-laden, low-cost, centralized solution will be a persistent future challenge for the independent advisor, he acknowledges.
“Is there the danger of somebody putting something together like that and stealing market share?” Knauss asks rhetorically. “I can’t say no.”