Principal Financial Group, the global insurance and asset management firm, which reported $703 billion in assets under management during its recent Q3 earnings call, is the latest firm to roll out a hybrid advice offering combining digital and human advice. The firm announced Tuesday that it had launched Principal SimpleInvest, which will provide those saving for retirement both online personalized investment advice and guidance from financial professionals.
As for the logic behind the launch: “Principal is making strategic investments to meet the needs of the Direct-To-Consumer market as well as capture a bigger piece of the $10 trillion IRA market,” said Mamadou Sow, head of direct to consumer at Principal.
“Principal SimpleInvest is more than robo-advice. Customers get unlimited access to a human team of financial professionals who are ready to help with a wide array of topics ranging from budgeting to life insurance,” he added.
Eric Sandrib, a research associate at Aite Group, who oversees the firm’s Market Monitor reports covering digital investment and the robo advisor space, agreed that the IRA and also the 401(k) rollover market are probably a good one for Principal to pursue.
"There is quite a bit of upside potential for them, catering to people looking to roll over their 401k(s) and this is a big market and they certainly want those clients [rolling over old Principal accounts] to stay under the Principal group," he said. "And once those clients are in the door you can let your mind wander about the cross-sell opportunities for new clients," Sandrib added, noting that through the SimpleInvest onboarding process the firm will be collecting plenty of useful client data including risk profiles.
William Trout, head of wealth management at research and advisory firm Celent, said it is an appealing offering for multiple reasons. "With risk profiling and glide path capabilities, portfolio models and tax rebalancing at the account, goal, and household level, you’ve got what I like to call the “Robo UMA,” he said. When asked whether this offering was adding to a market seemingly saturated with robo offerings and now hybrid in terms of human advice bundled in Trout did not agree.
"I don’t think hybrid advice is overexposed, on the contrary, it’s a necessary antidote to the tubercular economics of the advice business," he said. "The challenge, around which Schwab, Fidelity and Vanguard continue to wrestle, is how much 'touch' should a high-touch digital advice proposition actually offer, and when? The timing question is a real differentiator," Trout added.
When asking about Principal's target market, Aite's Sandrib said the motivations for large incumbents is definitely not the same as for startups.
"What really seems to be driving asset growth is large brand name firms with large established client bases—we have the startups growing the slowest of those involved in the robo and automated digital investing space," said Sandrib. "When I look at what Principal is doing here, there is nothing that is in the service that isn’t already in the market but that doesn’t matter so much for firms that have such a large brand name and large pre-existing customer base."
He noted that an interesting avenue to go down in thinking about this was looking at the drivers for them to implement the service. Simply put, it shouldn’t have been too much work to develop, Principal is loading the service with proprietary products, and they are running it on the RobustWealth platform, which is a subsidiary. In other words, not the heavy lift in terms of development that startups must pursue or the lengthy time-sink of establishing third-party technology partnerships or co-developing a service with a white-label provider.
Another reason it seems fairly clear the firm is not pursuing a cost-focused, cost-sensitive millennial market is the all-in 85 basis point set of fees.
"It is kind of expensive relative to other services available and that there is no freemium [offering] here, it doesn’t seem like millennials will be the primary market they are after," Aite's Sandrib said.
SimpleInvest uses mutual funds and ETFs managed by Principal Global Investors and the trading services of RobustWealth, the digital wealth management firm acquired by Principal in 2018.
Among the new offering’s key features are the ability to create personalized investment portfolios online and access to financial wellness courses and tools. In addition, financial guidance is available from a team of advice and planning consultants. Principal declined to disclose further details regarding headcount of the human financial professional component or how many were holders of the CFP designation. The company added that a “team of investment advisor representatives” would be available to “assist with portfolio questions.”