‘Common Sense’
“The robo-advice tool, which is an asset-allocation tool, is kind of taking common sense and putting it into a very user- friendly model,” Morgan Stanley Chief Executive Officer James Gorman said this week during the New York Times Dealbook conference. “If places like us don’t have that capability, we should have that capability, whether we build or buy, we should have it.”
Mutual fund companies including Charles Schwab Corp. and Vanguard Group Inc. already have created their own automated offerings, and BlackRock Inc. said it bought FutureAdvisor in August.
Merrill Lynch’s 14,563 full-service advisers -- who typically manage clients with more than $250,000 in investments -- are among the most productive in the industry, bringing in more than $1 million dollars each in revenue annually. Bank of America, based in Charlotte, North Carolina, has $2.4 trillion in client assets, the most of any U.S. bank. In 2010, it started Merrill Edge, a discount brokerage that targets clients on the lower end of the wealth spectrum and now manages $117 billion for 2 million customers.
As low-cost providers take a larger percentage of the wealth-management industry’s total pie, revenues will fall by as much as $12 billion by 2020, according to the A.T. Kearney report. The ranks of financial advisers will shrink as consumers switch to robots and some human brokers adopt robo-tools to become more productive, Hedges said.
For their part, bank executives don’t think virtual advisers will replace many people anytime soon. Higher-net-worth clients need estate planning, advice on taxes or complicated financial arrangements that algorithms can’t handle. Like a luxury carmaker offering an inexpensive base model, robo-service can be a gateway to the firm’s pricier offerings.
“Some will flourish with the change, and others will struggle,” Hedges said. “What’s unfolding is a broad repricing of what financial advice costs.”