The free planning apps launched by major financial players in recent months are useful tools for the investing public — but they are also familiar reminders of how technology has the potential to disrupt wealth management.
Advisers have long held an advantage over digital advice when it comes to creating long-term plans. By understanding their clients’ wants and needs, planners provide real value that’s hard to get by filling out a simple risk questionnaire at an online platform.
That’s long been the mantra for wealth managers, who have watched fearlessly as robo-advisers gobbled up hundreds of billions of dollars in assets over the past decade armed with sleek digital designs.
But it might not be the case anymore.
Fidelity Investments Inc., Charles Schwab Corp. and Bank of America Corp. have all introduced free financial planning apps that aim to combine the know-how of advisers with the ease of a mobile app tucked right into a client’s pocket. Sure, it’s yet another move by the incumbents to cross-sell products and increase market share, but it begs the question: Will it also steer clients away from traditional advice?
The “freemium” model has long been the modus operandi of some of the original digital players, most notably Personal Capital, but more recently Wealthfront, which launched its free planning software at the end of 2018. Contrary to all the doomsayers, assets on robo-advice platforms never came close to initial expectations, and the robos certainly didn’t eat the advice industry for lunch as some had predicted.
The difference this time around is the big incumbents have a wider reach and a much bigger appetite. Bank of America, which launched its Life Plan app on Oct. 5, said it created customized plans for around 475,000 of its customers who used the tool as of mid-October. For comparison, that is well north of the 357,000 total number of clients Wealthfront listed on its most recent Form ADV. In roughly two weeks BofA created more plans for clients than are currently served on the Wealthfront platform.
By increasing access to financial planning, these incumbents are creating an avenue to other offerings like digital advice products. Life Plan, which gives three million clients access to advice, creates a natural funnel for those clients to graduate to premium services like Merrill Edge.
Wealth management has largely been insulated from massive fintech disruption that has hit other industries — like accounting firms with TurboTax, or car dealerships with Carvana — in large part because it’s a relationship-based business that relies heavily on the empathy only other human beings provide.
After all, creating a plan isn’t about portfolio management and inexpensive access to ETFs. It’s increasingly tied to understanding a clients’ emotional relationship to money and how their financial plan helps achieve long-term goals.
I’m not betting the house that a financial services app takes over wealth management or that an obscure fintech sparks a race-to-zero on assets-under-management fees, like Robinhood and its commission-free trades.
But we know fintech has the power to change the landscape, and for digital advice startups, financial planning software makes an ideal beachhead.
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