By Rob Curran
Millennials are expected to have more than $11 trillion in
financial assets in the next 12 years. Who will help them manage
that money as they get older?
The battle between fintech startups and traditional
wealth-management firms promises to be a fierce one. Many younger
investors are loyal to the fintech startups, which are trying to
expand their offerings. The traditional firms, meanwhile, have
polished their once-dreary websites and rolled out low-cost options
in a bid to attract millennials.
"The problem that some of the fintechs will face is that while
they were with you when you didn't have much money, they gave you a
great experience and didn't make you feel like you were less than a
full-fledged investor, does that loyalty carry over when your
financial needs become more complex?" says Raja Bose, a partner at
consulting firm Genpact.
But established wealth managers should take little comfort in
whatever growing pains fintech firms might encounter. In many ways,
this is the newer companies' race to lose, some observers say.
Fintechs' advantages
Fintechs, which often started with one product, are now offering
many. For instance, Acorns, a platform that helps its 3.7 million
users save by investing spare change into exchange-traded funds,
has in the past year launched an individual retirement account
product called Acorns Later, as well as a debit card. It's also
exploring impact-investing products, which are geared toward social
and environmental goals, an area thought to be popular among
millennials.
"You have a lifelong relationship" with someone if you can help
them do something they thought was otherwise impossible, like
saving money, says Noah Kerner, chief executive of Acorns. Fund
giant BlackRock recently invested $50 million in Acorns to help it
expand further.
Betterment, a robo-advisory pioneer, is also branching out. Last
year it launched a premium product for those who have managed to
accumulate a significant amount of money -- at least $100,000 to
keep in a Betterment account. It includes unlimited access to human
advisers and carries an annual fee of 0.4% of the account balance.
That compares to its digital service, which has no minimum and a
0.25% fee.
"The industry's case is: 'Oh yeah, when [millennials] grow up
and have money they'll come running' " to the old-line
wealth-management giants, says Matt Harris, a managing director at
Bain Capital Ventures. Bain was an early investor in Acorns. "I
don't think that's a safe bet -- not even remotely."
One advantage the challengers have is that they are
digital-first by their nature. That positions them well with
millennials, who tend to have either grown up with a digital
mind-set or become more digitally dependent than many older
investors. Millennial investors "are far more likely to feel that
some of the most cutting-edge technology tools are basic
requirements of a service offering, rather than a 'nice-to-have,' "
according to a 2017 report on millennials and money by
Accenture.
Fighting back
But the old guard are hardly pushovers. A few years ago, the
conversation about incumbents vs. challengers was about apps and
interfaces. Fintechs had slicker offerings. But Genpact's Mr. Bose
says incumbents have largely closed that gap.
For instance, Merrill Lynch and Morgan Stanley have launched
their own robo advisers with interfaces they believe rival those of
the newcomers. They are, however, eyeing customers who already have
a few thousand dollars to invest. Merrill Lynch's Merrill Edge
Guided Investing has a $5,000 minimum, while Morgan Stanley's
Access Investing has a $10,000 minimum. Betterment has no minimum
on its digital account and Wealthfront's is $500.
Merrill and Morgan Stanley also charge slightly more in fees,
which they say is justified by the combination of human and digital
advice available to their robo clients. "As people age, their lives
get more complex -- there are trust and tax and estate issues,
mortgages and inheritance," says Naureen Hassan, chief digital
officer at Morgan Stanley Wealth Management. "That's where we see
people wanting the help of a financial adviser to help them talk
through decisions and make decisions in a collaborative way."
Millennial customers have "an appreciation for both the high
tech and the high touch," says David Poole, head of advisory,
client services and digital capabilities for Merrill Edge, the
online side of Bank of America Merrill Lynch's brokerage
business.
Some investors -- young and old -- prefer to act as their own
financial adviser. These market junkies have long used discount
brokers like TD Ameritrade or Charles Schwab to save on
commissions. Millennials often play the market with the app
Robinhood, which doesn't charge any commissions. Now JPMorgan Chase
plans to launch an app that will offer 100 free stock trades to
account holders at its retail bank in the first year. (Merrill
Lynch also offers Bank of America account holders free trades on
Merrill Edge, if they meet balance requirements.)
Joining forces
One way incumbents and newcomers could proceed is by joining
forces, says Mr. Bose. Goldman Sachs's approach could provide a
road map. Although the firm has a long history of serving the
wealthy, Marcus by Goldman Sachs, the company's online consumer
bank, is eyeing the same types of customers as the fintechs. Its
consumer-loan business, which people often use to consolidate
credit-card debt, has no origination fees and low rates, and lets
users customize things like the payment date. The minimum size for
its high-yielding savings accounts is $1.
Earlier this year Marcus bought Clarity Money, an app that lets
consumers view all of their financial data in one place, keep
better tabs on their spending and see tailored offers for various
financial products. One of Clarity's partners is Acorns.
The partnership with Acorns was a draw for Marcus, says Omer
Ismail, chief commercial officer at Marcus.
Marcus doesn't currently offer investing tools, but the company
is exploring that possibility, Mr. Ismail says. Goldman is leaning
on the company's legacy, Mr. Ismail says, but it is also looking to
build trust the way fintechs did it -- by addressing specific
challenges people face in figuring out their finances.
Mr. Curran is an editor for Dow Jones Newswires in Denton,
Texas. He can be reached at rob.curran@dowjones.com.
(END) Dow Jones Newswires
September 23, 2018 22:22 ET (02:22 GMT)
Copyright (c) 2018 Dow Jones & Company, Inc.
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