Future of Investing

Morgan Stanley is using a robo to attract younger customers

  • Morgan Stanley launched a robo-adviser geared at millennials interested in sustainable investing.
  • The lower entry point and digital advice offering may appeal to some millennials, particularly those whose families may already have advisory relationships with the firm.
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Morgan Stanley is using a robo to attract younger customers

Investment behemoth Morgan Stanley just entered the robo race.

This week, the firm debuted a digital investment product, Morgan Stanley Access Investing. The easy-to-use platform offers portfolios made up of mutual funds and exchange-traded funds, combining elements of active and passive management. Investors need to put down a minimum of $5,000, and they’ll pay a 0.35 percent assets under management fee — excluding fees and expenses relating to owning shares of a fund. To the company, it’s a way to reach younger investors.

“Access Investing allows Morgan Stanley’s financial advisers to expand their reach and nurture clients by building a pipeline to the next generation of high net worth clients,” read the announcement.

Morgan Stanley is the latest among incumbent firms getting into digital advice, following Wells Fargo and Bank of America Merrill Lynch, which launched robo platforms earlier this year. What’s at play here, analysts say, is a strategy to tap into the massive wealth transfer that’s about to take shape. According to Accenture, $30 trillion in financial and nonfinancial assets is expected to move from baby boomers to young people in North America. Meanwhile, the market for digital investment advice is growing among younger people, with robos expected to capture $385 billion in assets under management by 2021, according to recent research. By setting a lower entry point, it’s addressing millennials’ comfort with digital tools.

“Companies are looking at their client base and see where it’s skewed toward older individuals,” said analyst and 401(k) startup co-founder Grant Easterbrook. “Millennials expect digital offerings, and they’ve used things like Amazon and Google their whole life — the current model isn’t going to work 10 or 15 years from now.”

Younger investors are also less likely to blindly follow the advice of a traditional financial adviser — another motivation for a large firm to offer a robo product. To illustrate this point, in a study from Scottrade from earlier this year, 67 percent of millennials polled felt their adviser sometimes recommends products that are in the adviser’s, rather than the customer’s best interest. To respond to this cynicism, a digital offering may tap into the demand for transparency from a younger audience.

“Millennials are not fond of their parents’ generation of financial advisers, so [Morgan Stanley] is like, ‘We’ve got a digital platform; we can lower the access point, but we can create all the customization the customer will identify with, and we have the reputation,'” said Denise Valentine, Aite Group senior analyst.

 

morganstanleyrobo

Screenshot from Morgan Stanley promotional video

For Morgan Stanley, customization can mean offerings that speak to millennials’ desire for sustainable investment products — research findings Morgan Stanley is highlighting. Accordingly, the product offers seven thematic portfolios, examples of which are sustainability, gender diversity, next-wave technology and emerging market trends. While clients will have access to a call center, the agents will not be financial advisers but employees that will help customers navigate the platform.

One analyst said the sustainability hook may resonate with a segment of the target audience, but it isn’t likely to be a driver for them. “Yes, they are a name brand, but they’re also thought of as expensive — your typical millennial in their first job is going to be far more likely to join a Stash, Betterment, Wealthfront or Personal Capital,” said Davis Janowski, senior analyst at Forrester Research.

Despite the lower entry point and 0.35 percent annual fee, Janowski said the product more closely resembles robo products other incumbents offer, citing the example of the Merrill Edge Guided Investing product, which also has a $5,000 minimum with a 0.45 percent annual fee. Meanwhile, Betterment charges 0.25 percent for its lowest-tier offering, while Wealthfront doesn’t levy a fee for the first $10,000 and charges 0.25 percent on amounts over $10,000. Morgan Stanley may be aiming for a broad span of consumers with its offering, but children of existing clients may be a closer target.

“With the low minimum, you can conceivably see the children of higher net worth clients just seeding a $25,000 account at the start,” he said.

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