Future of Investing

Why big financial firms are building robos instead of white labeling

  • Wells Fargo, Morgan Stanley and JPMorgan Chase have all launched their own digital investment products; Goldman Sachs, Raymond James, YF Financial and ICBC are all currently developing their own
  • Like Walmart’s purchase of Jet.com to compete with Amazon, large financial institutions are launching home grown robots-advisers to compete for DIY or too-small investors

Email a Friend

Why big financial firms are building robos instead of white labeling
Some of the biggest financial firms are looking to claw back some control over their clients by building their own digital investment services. In November, Wells Fargo launched Intuitive Investor, its digital-human hybrid offering from Wells Fargo Advisors. The following month Morgan Stanley launched Access Investing and JPMorgan Chase launched JPMorgan Digital Investing. Goldman Sachs, Raymond James, YF Financial and ICBC are all currently developing their own. It’s part of the banking industry’s natural ebbs and flows when it comes to technological changes and the cultural shifts that come with them. Banks were on guard when startups came to eat their lunch, then they softened their stance realizing they need startups’ good technology and fresh ideas as much as the startups need banks’ scale — and customer trust. Now that they’ve strengthened their mobile and digital offerings, at least the largest and most well-resourced companies, they’re ready to reclaim their control over clients before others beat them there (and it only took them 10 years). “There’s this growing notion that whoever controls the front-end experience ends up having a lot of control over the client,” said Boaz Lahovitsky, svp of wealth management at Genpact. “The banks with enough resources don't want to risk giving third parties so much leverage, whether they take the client later on or use that experience — which is a critical piece because no clients like to change the interface — to extract the value out of the client relationship.” The start of the robo phenomenon was meant to address small, do-it-yourself investors, said Tom Streiff, special consultant to HBW Partners. “A lot of these big firms have a lot more small accounts than they’re willing to admit,” he said. “Robos were one answer to that. Now they want to have something that has more of their own mark on it … not just to get the technology but to get the smart people inside.” Streiff compared the trend to Walmart’s purchase of Jet.com “to be their Amazon alternative” to compete with Amazon. The large firms are like Walmarts, wanting to compete where there are investors that want to do it themselves or whose assets are too small. It’s not just about regaining control over customers. The technology needed to build an offering in-house isn’t as much of a mystery as it used to be and it’s easier now to find and hire small teams for those projects than before, said Lahovitsky. Another lesson in every part of financial services has been that a new user interface isn't enough to ensure a quality user experience — changes on the back-end are just as important. Originally, robo-advisors weren't designed for B2B uses and now many banks white labeling those offerings are converting them from consumer-facing solutions to B-to-B solutions and facing a lot of challenges with the integrations, Lahovitsky said. That leads to the realization that there are technology gaps inside bit companies, and the culture challenges follow. “You end up with the startup hiring another 100 folks just to deal with a big bank; the bank uses 200 folks for the integrations,” he said. And the costs after everything just aren't worth it for a bank the size of Goldman Sachs or Wells Fargo. “If you have a $30 million-asset under management business, building doesn’t make sense,” said Arjun Saxena, head of wealth management at PwC. “Even if you got 10, 15, 20 percent penetration of that business, the fixed costs involved in the build will not be paid off by whatever margins you think you can make on that type of volume.” But for a company with trillions of dollars of assets under management, or even the hundred billions, the equation reverses, Saxena added. “Now it's preferable to be building as opposed to buying or renting where you pay a basis point fee to the white label provider.” UBS, Citizens Financial, Pershing Advisor Solutions, John Hancock and State Street are all still white labeling robo offerings from SigFig, Motif or NextCapital. Typically, the white label provider will take 15 basis points of the total and leave the rest to the bank for distribution, Saxena said. Pricing from independent players, like Betterment or Wealthfront, is competitive. “If you have a large base you think twice about paying 15bps. If you expect your business to grow over time it’s not wroth it to do the white labeling, you might as well sped the up-front cost of developing," he said.

0 comments on “Why big financial firms are building robos instead of white labeling”

Outlier OpinionsMakers

Future of Investing

The effect of ‘money on the sidelines’ on fintech

  • As interest rates rise, money is increasingly finding its way towards safe, high yielding assets.
  • This is creating a challenge for fintechs predicated on selling or brokering riskier assets.
Zachary Miller | August 01, 2023
Future of Investing

With its core business slumping, Robinhood is eyeing credit cards

  • Last month Robinhood announced that it will be acquiring X1, a startup that offers income-based credit cards.
  • We dive into why Robinhood is expanding into credit cards and what X1 is bringing to the table.
Rabab Ahsan | July 28, 2023
Banking, Business of Fintech, Future of Investing

Closing the equity gap for underrepresented entrepreneurs: How Bank of America is driving diversity and inclusion in venture capital

  • Many small and new businesses are phasing out every year in the US. Although it can be argued that there are many reasons that may contribute to the failure of these businesses but inaccessibility to funding appears to be one of the root causes.
  • Bank of America is en route to creating a new narrative. To address these stumbling blocks and shine a light on diverse fintech founders, the Wall Street bank is devising an accelerator program called ‘Bank of America Breakthrough Lab’.
Sara Khairi | June 02, 2023
Future of Investing

Amid shifting market dynamics, how can wealth managers create value?

  • The wealth management market is going through a rough patch. Economic uncertainty and financial stress are having a negative impact on investor sentiment, shows a new EY global wealth research report.
  • As a result, clients have started to ask more questions and demand more proficiency. 
Sara Khairi | May 17, 2023
Future of Investing

Philosophical Switch: Wealthfront introduces stock investing and plans to build investing habits for the long run

  • Stock trading by small investors is on the up and up.
  • Just in time Wealthfront has launched the option to invest into individual stocks exemplifying a philosophical switch in its robo-advisor business model.
Rabab Ahsan | March 23, 2023
More Articles