Merrill Lynch enters the robo-advisory business

Fees are higher than some competitors, but firm already has brand awareness to make inroads into the market

Oct 5, 2016 @ 12:43 pm

By Grete Suarez

The race among big banks to take a bite out of the robo-advisory pie continues, with the latest contender, Bank of America Merrill Lynch, announcing its own Merrill Edge robo-adviser that is expected to launch early next year.

Merrill Edge Guided Investing will combine an online brokerage platform with Merrill's human advisers in an online format and an app to offer automated investment advice based on customer risk tolerance and needs.

"Their entrance into the space isn't surprising. We've long expected all of the incumbents to enter into the space that we created when we launched Betterment,” said Jon Stein, CEO and founder of Betterment.

Customers will be able to choose from a list of stocks, ETFs and mutual funds that are evaluated by a Merrill Lynch investment team — meaning humans — rather than by a computer, according to a statement. A spokeswoman for Bank of America confirmed that the chief investment officer, Christopher Hyzy, and his staff will be behind the selection of 10 ETF portfolios the robo-adviser will draw from.

Merrill Edge Guided Investing charges an annual fee of 0.45% on the managed assets. This does not include the fees charged on underlying funds in the portfolio. This is higher than peers such as Fidelity Go that charges an annual fee of 0.35%, and Schwab Intelligent Portfolio which only charges fees on its underlying funds.

The fee is also higher than established startups such as Betterment, which charges a 0.35% annual fee on balances under $10,000 (but requires a constant deposit of $100 each month) with no trade fee, and Wealthfront, which charges a 0.25% annual fee on balances over $10,000.

(More: Too many robos crowding the market?)

Lex Sokolin, global director of fintech strategy at Autonomous, said branding awareness will be Merrill Lynch's competitive edge. He said that venture capital firms have invested heavily in building brands in this space, whereas Bank of America Merrill Lynch can potentially reach their customer by advertising at their ATMs.

"I will expect them to use the full weight of the firm to reach and educate the consumer," he said.

"At the end of the day, fees won't matter that much," said Mr. Sokolin. "I don't believe consumers are so price sensitive. I think it's already really hard to get somebody to know that you really exist, so Bank of America's robo will definitely be on top."

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