Banks eager to offer financial advisory services typically bring in a small team of advisers, often partnering with a third-party broker-dealer to do so. Not Cambridge Savings Bank. The Boston bank chose to hire a robo instead.
Cambridge Savings teamed up with SigFig, an automated advice platform provider, with the goal of winning business from customers with less than $1 million in investable assets.
The move felt right for Cambridge Savings, says Dan Mercurio, the bank's head of Consumer and Small Business Banking, as most of its bank customers were reaching out to outside advisers for transactional rather than advice needs. "For fundamental basic asset management needs, asset allocation and automated rebalancing, we felt starting with a robo solution was more relevant to some of the digital behaviors that we were seeing from our customers," he says.
Bank customers using the Connect Invest platform have over-the-phone support from a remote team of three advisers in San Francisco provided by SigFig.
If other banks follow Cambridge Savings' unconventional approach to launching an investment services program, it may intensify the competitive forces buffeting TPMs as they hunt for new financial institutions with which to work. It doesn't help that the number of U.S. banks and credit unions has shrunk over the last year, falling 4.5%, according to the latest Kehrer Bielan TPM report.
Robos may pose a potential threat to TPMs if the platforms become the standard way in which financial institutions enter the advisory business, says Scott Stathis, managing partner of research and consulting firm Stathis Partners.
But he doesn't see that happening because TPMs will soon be offering their own robo options that they can offer potential partner banks and credit unions.
Still, Stathis says, robos have put TPMs on notice that "they better get with the program."
Easy way to gauge customer interest
If anything, Cambridge Savings' unorthodox move shows other banks that they now have a new way to test whether to get into the investment services business. "It's a new way for banks that have a preliminary interest in an investment program to put their toe in the water," says Stathis. "They can see what percentage of their client base may be interested in managing investments through the institution."
Indeed, that's exactly what Cambridge Savings appears to be doing. While the bank is now using advisers provided by SigFig, it is open to one day hiring its own. "We're not even thinking about that yet, but we've at least left the possibility there if we feel like we need boots on the ground to further enhance the offering," says Mercurio.
Mercurio says that the bank would consider building a traditional investment services program if the arrangement with SigFig does not yield customer interest or if the service level begins to fall. "If we're a year down the road and we're hearing from bankers that it's very difficult for us to be able to create interest in this without having licensed advisers, then we would look at it," he says.
For the next year at least, the bank is going to "stay true to the model it introduced," Mercurio adds.
-
Banks are lining up behind Capital One to launch robo platforms even as they gird for an initial hit to their brokerage business.
June 27 -
Several big banks are getting into the business, mostly by forming partnerships with fintech companies. Smaller banks are expected to soon follow suit.
July 20 -
The bank is rolling out a new digital advice offering that pairs robo technology with financial advisers, most of whom have the CFP designation.
June 17
"It makes sense to me that Cambridge might see that as a natural path to follow," Tim Kehrer, a senior research analyst with Kehrer Bielan Research and Consulting, says of the bank's arrangement with SigFig. The bank will be able to onboard younger, less affluent customers in the hope that they will one day choose to move over to a more traditional full-service advisory relationship.
The bigger question—for Cambridge Savings and other financial institutions—is whether robo-managed assets can be profitable. The 50 basis points that Cambridge Savings is charging customers annually, for example, may not cover what the bank is spending on the deal with SigFig, Kehrer notes.
"Time will tell if this ends up being a profitable venture for the banks and the TPMs," Kehrer says. "It could end up existing as something that doesn't throw off a lot profit but still serves a segment of clients that otherwise has no home."
