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Morgan Stanley has made a late push for dominance in the fast-growing market for “robo-advice” in America, launching an automated service aimed at the offspring of its well-heeled customers.
Over the past few years automated investment platforms such as Betterment and Wealthfront have lured hundreds of thousands of investors with the promise of managing their money at a fraction of the cost of human advisers, mostly by offering cheap exchange traded funds and rebalancing periodically to optimise profits and taxes.
Funds managed by software will grow to $385bn by 2021, according to Cerulli Associates, more than quadrupling from today’s levels. Automated platforms “will probably be table-stakes for most firms in the financial-advice industry in the next handful of years, rather than a massive differentiator”, said Devin Ryan, an analyst at JMP Securities in New York.
Morgan Stanley is the latest to pitch in, offering a choice of ETFs, mutual funds and seven themed portfolios, among them sustainability, gender diversity and next-wave technology. The new online tool, known as Access Investing, is designed to appeal to a younger generation, many of them members of wealthy families.
According to Naureen Hassan, chief digital officer for wealth management, about 70 per cent of clients opening accounts in the first couple of weeks were aged 44 or under. “We’ve developed this to hit that next generation, to bring clients into Morgan Stanley earlier in their investing lifecycle, so they can grow with the firm,” she said.
0.35 per cent
Morgan Stanley’s fee for robo-investment
Wealth has been a vital ballast to the bank in recent years, as margins have been squeezed in equity trading and the bank has tried to cut its core bond-trading unit down to size. In the third quarter net revenues from wealth rose 9 per cent from a year earlier to $4.2bn, as revenues from trading and investment banking dropped 4 per cent to $4.4bn.
Morgan Stanley had 15,759 wealth-management reps at the end of the period, behind BofA’s Merrill Lynch’s 19,108. Average annualised revenue per adviser was a record $1.07m, up 10 per cent year-over-year.
Access Investing is charging 0.35 per cent of assets under management to clients with at least $5,000 to invest, on a broad par with other robo-offerings. But some have cut out management fees altogether: Charles Schwab, for example, has amassed about $25bn in AUM for its free service, which requires a minimum balance of $5,000 and cash allocations of at least 6 per cent.
M1 Finance, a Chicago-based robo-adviser, this month moved to a no-fee, no-strings model, allowing customers of the company, which has $100m in assets under management, to select stocks and exchange traded funds for free, whatever the balance.
M1’s move drew instant scorn from Betterment, the biggest of the independent robos, with about $12bn in AUM. Dan Egan, director of behavioural finance and investments, likened free investment platforms to free social media sites such as Facebook and Twitter, where “the customer is the product” and advertisers intrude on the user experience.
“We want to be paid by our customers, so we’re constantly incentivised to growth their wealth as fast and as efficiently as possible,” he said. “I just don’t know the world needs another conflicted broker.”
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