RBC Wealth Management is in active discussions with digital advice providers as it considers adding a robo component to its platform, John Taft, head of the firm's U.S. brokerage operations, tells On Wall Street.
"We are looking at numerous options when it comes to answering the question, 'Is there a way to integrate digital advice into our platform,'" Taft says. "Everything you can imagine is on the table and actively being explored."
Taft says that any digital advice component would not be meant to replace human advisors.
"It would be an add-on. It won't replace, and it won't be a change in strategy," he says. "It will be, 'Is there a segment of our clients who could be served by having that capability on our platform?'"
Should RBC enter the robo market, it would be joining a growing number of players which include corporate giants like Charles Schwab and startups like Betterment.
A few brokerage firms, like Raymond James, have opted to stay out of the fray. Taft says RBC is also fully committed to providing a full service advice model delivered by advisors.
"But you have to look at innovations in the industry, and you have to ask, 'Is there a better way to serve a segment of your clients by integrating them into your platform?' If you don't do that, you're putting your head in the sand," he says.
The robo market is a fragmentary, dispersed market that is likely to get more crowded, Uday Singh, a partner at consulting firm A.T. Kearney, says. Eventually the robo industry will experience margin compression, and there will be a smaller number of players left.
Some firms have been opting to stay out because they fear automation could cannibalize their existing model, or because it wouldn't mesh with their existing client base. But all firms are faced with the quandary of how to respond to new technologies.
"This is a critical choice these placers have to make. Do they want to be a defender or a disrupter? Standing still is not an option," Singh says. "It'll be different for every player because it's a complex question."
INTERNATIONAL ROBO?
Alois Pirker, an analyst at Boston-based research firm Aite Group, says that a robo platform could complement RBC's existing business, which focuses more on high-net-worth clients.
"You can always offer up a layer of service underneath your service model, and expand that way," he says.
Pirker, noting that the firm also has a correspondent service, says: "I can almost see a strategy similar to what Schwab has been pursuing."
Unlike some of its U.S. rivals, the Toronto-based RBC also faces additional pressure. In its home market in Canada, rival bank BMO is developing its own robo platform.
"It doesn't matter if it's Asia, Europe or North America. It's the same conversation," Pirker says, adding that he just returned from a conference in Singapore where robos were a hot topic.
In the U.S. there is abundant funding for robo platforms and startups, "and it's providing a fertile ground for traditional firms to pick up startups," Pirker adds.
For example, robo advisory firms raised $290 million in private funding during the fourth quarter of 2014, according to a new study from TABB Group, a New York-based research firm.
Singh says that RBC could have a leg up if it develops a robo platform in the U.S. and then transitions it to Canada.
"There are certainly synergies to be gained," he says.
FIDUCIARY CONSIDERATIONS
Taft says they're also being prompted by the momentum behind the Department of Labor's fiduciary standard proposal.
"Let's say that you have a client that has $17,000 in their IRA and the Department of Labor is successful in publishing a rule that makes financial advisors fiduciaries. What do we do?" he asks, "We have three possibilities:
"We can convert that account into a regular fee-based account. That would be so exorbitantly expensive for the client and that it wouldn’t make sense. The SEC wouldn’t allow us to do that, nor would we do that. We can call the client and tell them we can no longer accommodate their account; or we can say, 'We have this alternative offering. We have a partner that we're working with, and we would be more than happy to introduce you to them. You can keep your assets on our platform, and they'll provide digital advice that doesn't cost a lot.'
"Of those three options, which would be the most client-friendly? If we told them to call up Betterment or Wealthfront, I don't think we would contradict our commitment to full-service advice."
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