Citigroup is the latest financial services firm to offer a digital advice platform designed to draw retail banking clients into lucrative wealth management relationships. However, the investment bank is behind competitors and the offering is priced well above the most attractive price points from competing firms.
“Citi is a little late to the game here,” says Jennifer Butler, director of asset management at the New York-based consultancy firm Corporate Insight.
Citi customers can access the bank’s Wealth Builder accounts with an initial investment of $1,500 and the bank will charge an advisory fee of 55 basis points. The fee will be waived for the bank’s top-tiered clients — those who hold at least $50,000 in assets at the bank.
Similar to competitors’ digital offerings, Citi’s Wealth Builder matches clients with portfolios after employing a risk questionnaire to gauge their comfort with market volatility and other factors. There are six risk levels tied to customized portfolios.
“The robo advice is just a starting point,” says Simon Roy, CEO of Jemstep, a subsidiary of Invesco that provides the underlying white-labeled technology. “Over time, businesses are looking for ways to essentially digitize their businesses. Every client today expects a digital experience.”
In addition, giving clients access to markets is another avenue for the investment bank to gain a larger portion of its clients’ wallet share. Citigroup has about 200 million customer accounts and does business in more than 160 countries, according to a release.
“The question has really become, ‘How effectively can you provide comprehensive financial services?’” Roy says.
Wealth Builder is available in Citi’s retail banking client portal, according to Roy. Customers can track their accounts online or in the retail app with 24-hour live support, according to the release.
Citigroup declined to answer additional questions.
The New York-based bank is one of the last financial services companies to launch a digital advice product. Competitors including JP Morgan Chase, Wells Fargo, Bank of America and Morgan Stanley offer some type of robo-advice — some for many years. Being late to the market, did Citi lose prospective clients to the competition?
“Robos are not a product that moves the needle for incumbents,” Butler says. “This offer is just not as enticing.”
It’s not cheap, either. Similar offerings from brokerages and fund families like Fidelity, Schwab and Vanguard start at lower price points and have similar investing capabilities. Vanguard’s Personal Advisor Services, for example, advertises a 30 basis-point fee on assets of up to $5 million.
Firms are not only trying to attract new clients by offering cheap automated investment platforms to clients, but through better pricing on trades as well. Citi announced commission-free ETF trades and some U.S. Treasury bond purchases for Citigold clients — those with at least $200,000 in asses held at the bank.
“It makes sense for brokerages,” Butler says. “They lost a major source of revenue when commissions went to zero.” Financial services firms will have to stop thinking about serving clients with products and more about addressing the client life cycle, she adds.
There’s only one major bank that has not yet launched a robo: Goldman Sachs.
Citi has, “the benefit of seeing what the pioneers have done,” says Jemstep’s Roy. “Watching what has worked and what hasn’t worked allows us to essentially focus on the areas that make for the most compelling experience for clients.”
For Jemstep, the partnership will provide deeper insights into the wants and needs of retail clients and the advisors who serve them, Roy says. The data can then be used for developing new products.
The automated advice platform is Citi’s latest push into wealth management. Citi Wealth Advisors — a
While robos have effectively become table stakes for large and small financial service providers, the tools offer a significant advantage to the banks that are willing to employ them. Their lower costs allow younger clients with fewer assets to invest. It’s a population that has traditionally been underserved by the wealth management industry.
“They need to keep those assets in their ecosystem,” Butler says.
Also, automated investment products allow firms to start wealth management relationships much earlier, says David Goldstone, head of research at Backend Benchmarking. This puts them at a competitive advantage when younger clients come of age. “Firms can no longer wait to introduce wealth management services until clients have met minimums,” Goldstone says.
Firms that do not introduce wealth management early may need to look harder to find new relationships.
“Investors will have an existing relationship in place by the time they are wealthy enough to be attractive to a traditional advisor," Goldstone says.
