As a surge of interest in stock trading has driven many first-time investors to
Merrill Guided Investing grew assets under management 33% year-over-year in the fourth quarter of 2020, according to Matt Gellene, head of consumer client management at Bank of America Merrill. Following that growth, the firm is reducing minimums on its purely digital automated advice to just $1,000 from $5,000, which had been the price point
Guided Investing with an advisor still requires a $20,000 minimum.
“More and more Bank of America clients are coming to us, looking at this type of solution as something they want to get involved in,” Gellene says.
Because Gellene wasn’t part of the team that launched Guided Investing, he wouldn’t comment on why the original minimum of $5,000 was set or why it’s changing after nearly four years. However, he didn’t rule out that the firm could someday reduce minimums even further, perhaps bringing them to zero.
The timing of the announcement was not influenced by current events, such as the spike in retail trading inspired by Robinhood and GameStop, or the issuing of $1,400 coronavirus stimulus checks, Gellene says. While there has no doubt been an increase in do-it-yourself trading, the vast majority of Merrill Edge consumers are long-term investors, he adds.
“We like to adjust and make sure we give people the access they need,” Gellene says. “We like to see where we can make the most impact. Right now, $1,000 is the right number.”
The initial investment required to open an account is the most important factor among U.S. consumers in selecting a digital advisor and about three times as important as annual fees or planning tools, according to market research from Parameter Insights. This means reducing entry barriers is critical for growing digital advice market share, says Josh Book, Parameter Insights’ founder and CEO.
“The name of the game is bringing customers in and then delighting them,” Book says in an email. “This move by Merrill combined with their strong brand should result in more customers especially as more and more people explore investing options — many for the first time."
Total assets on Bank of America’s Consumer Investments business — which included Merrill Edge Self-Directed, Guided Investing and Guided Investing with an Advisor — are up 27% year-over-year to $300 billion, with client accounts growing 10% year-over-year to surpass 3 million.
While Bank of America was an early adopter of digital advice among traditional financial institutions, it now faces significant competition. Last month,
Vanguard launched Digital Advisor in 2020, which offered a digital-only alternative to Personal Advisor Services for just $3,000 instead of $50,000.
“We believe advice is not a ‘one size fits all’ proposition and that it should be available in a range of options to best meet investors’ needs, preferences, desired value for the cost, and current level of investable assets,” says a Vanguard spokesperson when asked how the company determined its minimum investment.
Also in 2020, Wells Fargo
JPMorgan Chase, meanwhile, offers automated investing for just $500. Morgan Stanley maintains a $5,000 minimum.
Firms are trying to find a balance between covering the costs of offering these services with competitive pricing that helps grow market share, says Bryant Fuller, a partner at consultancy firm Capco. Merrill already has a strong value proposition that has proven successful at bringing investors to its digital service, and lowering the minimum will make Guided Investing attractive to a broader base of Bank of America customers, Fuller says.
“This lowers the barrier for bank-only customers to get advice and invest with Merrill, and subsequently increases the share of wallet with their clients,” he adds. “A thousand dollars is not a significant barrier to entry, but maintains the customer perception of value.”
