Is the fear of offering cheap advice dead? | Lead Bank

Jun 19, 2019

By: Suleman Din

AUSTIN, Texas — When digital-first advisors seeped into mainstream wealth management, industry executives raised concerns about the commoditization of advice.

Now, providers from Wealthfront to Goldman Sachs are packaging checking, savings and cash management account offerings in bids to offer the most attractive interest rates.

Some attendees at American Banker’s annual Digital Banking conference wondered whether conditioning customers to shop for the best interest rates — in addition to the lowest-cost options for advice — will only hasten wealth management’s commoditization.


Just like in the early days of automated advice, sustainability should be a real concern for many of these high interest rate account offerings, says Greg Bynum, president of Lead Bank, a Kansas City-based community bank.

“How do they make money on those high interest deposit accounts?” Bynum asked. “Some of these startups are offering up to 2.5% on $1,000 accounts. It costs more just to have an account like that in your system.”

In many of the cash account offerings, Bynum sees a repeat in strategy that digital advice firms adopted early on. “Some are doing it to get that mass of customers, and then figure out how to monetize them after.”

Advice runs the risk of getting watered down, some noted.

“Wealth management is such a niche product, how do you keep it that way?” asked one executive from Cincinnati-based Fifth Third Bank who asked to remain anonymous in order to speak candidly.

Another real risk in blending wealth management with checking and savings offerings online is message muddling, noted the executive. “For sure, it benefits when you can add to the wealth management offer, but banks and wealth management [due to regulatory demands] have to keep a strict separation. As a customer, would I understand that?”

Digital advice firms, however, defend the latest addition of savings accounts to their service lineups.

“We see a high-yield account as table stakes at this point, especially as more and more [firms] begin to offer it,” said a Betterment spokeswoman via email. “It’s important to offer customers a solution for what to do with the extra cash that is sitting in their checking and savings account doing nothing, when it could be working harder for them.”

The leading independent robo advisor launched a tool to its more than 400,000 retail clients in December that can monitor a client’s linked checking account and steer excess funds into a low-risk ETF portfolio generating returns of about 2%, according to Betterment.

Americans are holding onto more cash. Retail investors maintained a record-high $3,673 on average in checking accounts across all financial institutions including banks, thrifts and credit unions, according to a 2018 report by Moebs Services, an economic-research firm. Checking account funds increased in 24 of the past 30 quarters, according to the report.

If clients are keeping assets in cash, then banks are putting them to use. According to a Wealthfront spokeswoman, the top four largest banking institutions make over $300 billion in revenue a year on checking and saving accounts — adding that the $8 trillion held by commercial banks costs consumers over $170 billion per year in lost interest.

Read the full article with Financial Planning here.

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