Wells Fargo has finally revealed its plans to enter the digital advice market.
The recently embattled bank announced a new partnership Tuesday with SigFig, a technology company based based in San Francisco, to develop a new robo advisory offering for Wells Fargo Advisors.
Like other robo advisors, the technology is designed to be a low-cost offering for younger, emerging investors. The platform will automatically create a portfolio based on an investor’s answers to a questionnaire. Investors can then add funds electronically, and algorithms will automatically rebalance holdings, removing the need for a traditional financial advisor. The robo's investment strategy will come from the Wells Fargo Investment Institute.
Wells Fargo plans to launch a pilot program in 2017. Though it is a direct-to-consumer offering, Wells Fargo advisors will be able to offer the robo as a complementary offering to the existing business. The go-to-market strategy is still in development, but Wells Fargo plans to leverage internal channels to offer it broadly to Wells Fargo customers.
The hope, according to David Carroll, the head of wealth and investment management at the firm, is that by delivering digital advice to the next generation of investors, Wells Fargo can establish a long-term pipeline for its full-service advisory business.
Wells Fargo has hinted at its plans to introduce a robo advisor for several months now, but kept vague as to whether it would develop a product in-house, acquire an existing company, or partner with a technology developer.
“Experience and partnerships are some of our strongest attributes,” Carroll said in a statement. “We have an opportunity to serve clients more holistically with a product that complements our full-service business by combining the investment strategy of Wells Fargo with sophisticated investing technology, mobile tools and intuitive design.”
This isn’t SigFig’s first partnership with a bank. In May, UBS announced an equity investment in SigFig to help develop customized digital tools for its wealth management division and create a research and development lab.
“Investors are increasingly demanding improved digital experiences, making it vital that financial institutions invest more resources and incorporate more technology in their offerings," said Mike Sha, SigFig’s CEO.
Speaking to WealthManagement.com, Sha added that technology startup companies like SigFig can large-firm innovate quicker by testing new features on a smaller group of customers before scaling it to the institutional level. “It’s part of a much bigger trend in the industry: large financial institutions working with smaller, younger, more nimble companies to help accelerate the capabilities set.”
“The vast majority of Americans don’t have enough wealth to have a Wells Fargo advisor. Digital advice gives access to advice at a good price point," Sha said. “This is just a huge, unmet need.”
Once antagonistic to the wealth management industry, robo advisors are increasingly looking to be technology providers rather than strictly direct-to-consumer players. Betterment, for example, offers a white-label version of its product for financial advisors and has shifted into the 401(k) market with Betterment for Business. Other companies like Jemstep and Vanare are strictly business-to-business providers. Wealthfront is one of the only robos to remain exclusively a direct-to-consumer business.
“It looks like SigFig has figured out the massive enterprise sale cycle and business model,” said Lex Sokolin, the global director of fintech strategy at Autonomous Research and former COO of Vanare. “It’s also notable that the offering will be direct-to-consumer, similar to what Bank of America is doing with its internally built tool. That makes a statement by Wells Fargo about the role of advisors in the future of wealth management.”
Sokolin suggested that a self-directed model might be a good look for Wells Fargo’s image, which was recently tarnished in a massive account-opening scandal that led to 5,300 employees fired and the retirement of CEO John Stumpf. Sokolin also wondered if partnerships like this prove whether or not large financial institutions are capable of innovating internally. Bank of America and Morgan Stanley have both announced plans to build their own robos.
Devon McConnell, Wells Fargo Advisor’s head of digital, said that the decision to partner with SigFig, rather than develop a robo internally or acquire a company, was made to bring the product to the market as quickly as possible. She added that this project has been in development for some time, and trying to bring something to market quickly is not linked with recent events at Wells Fargo.
WealthManagement.com updated this article with responses from Wells Fargo and SigFig.