LPL rolls out robo-adviser to regional bank

Webster Bank will use a hybrid digital adviser to grow beyond the Northeast

Feb 13, 2018 @ 4:51 pm

By Ryan W. Neal

Regional banks are now looking at offering robo-advice to expand their presence in the financial advice market.

Webster Bank, a $26.4 billion financial institution with branches in Connecticut, Rhode Island, Massachusetts and New York, announced that it would start offering access to Guided Wealth Portfolios, a digital advice platform developed by LPL Financial and BlackRock Inc.'s FutureAdvisor.

John Olerio, senior vice president and director of Webster Investments, the bank's financial advice division, which uses LPL as a third-party manager, said GWP will be available through Webster's existing online portal. Clients can open new accounts, view their portfolios and input personal information.

(More: Robos to make banks a bigger competitor in advice market)

Like other robos, GWP will create an investment strategy based on the client's risk preferences, time horizon and financial goals. LPL's research and models will power the robo's algorithms and portfolio construction.

GWP is a hybrid solution, and Mr. Olerio said clients will have access to a dedicated Webster financial adviser via phone or email if they need personal advice. Accounts require a minimum $5,000 investment and clients will be charged a 45-basis-point management fee.

Mr. Olerio said robo-advice is becoming a table stakes product for all financial instutions as clients demand mobile access to their accounts, self-service options and digital communication with advisers. He sees GWP as a tool to connect with some of the millennial children of Webster's current clients, and he doesn't think robo-advice is limited to small accounts.

"For all of our investors, we feel there is an increasing need for technology," Mr. Olerio said. Traditionalists and tech-savvy investors both want human advice, "they just look for it packaged and priced in a different way."

While Webster will offer the robo through its existing online banking and investment services, investors don't have to be a Webster client to open a GWP account. Mr. Olerio said the hope is that provides an opportunity for the bank to grow beyond the Northeast region.

However, a recent report from Cerulli Associates found that while investor interest in digital advice continues to grow, it outpaces their actual adoption of the technology.

Scott Smith, the director of advice relationships at Cerulli, said regional banks like Webster could use robos to grow, but it will likely "be a slow growth opportunity rather than an avalanche of investors dying to get into them all at once."

Mr. Smith said the best opportunity for regional banks is to make the robo-adviser an attractive destination for millennials looking to roll over a 401(k).

"Getting those accounts moved to the bank once there is that first job change is a great opportunity for the banks but one they don't execute that well or frequently," he said.

LPL introduced GWP in August after two years of development and has slowly expanded its availability to all advisers.

"It is available to everyone, and they can then choose to incorporate it into their practices," spokeswoman Lauren Hoyt-Williams said in an email.

(More: LPL preparing two tech additions for advisers and their clients)

Mr. Smith said it makes sense for the broker-dealer to make the technology available to regional banks, which have been trying to get into wealth management for decades to diversify their revenue streams.

Davis Janowski, a senior analyst for digital wealth management at Forrester Research, agreed that providing this technology is a "no-brainer" for both parties. It gives LPL another distribution channel, while the regional banks get another service to provide their typically loyal client base.

"LPL is good at keeping costs low, and FutureAdviser is a proven commodity," he said.

What will be more telling is if the firm can compete with direct-to-retail robos on user experience.

"Robos put a lot of resources into developing out a really good interface. Community banks don't put a lot of development dollars toward interface," Mr. Janowski said.

So if the technology isn't as good, why would a customer open a GWP account instead of just going to Betterment or Wealthfront?

"If you're a client of the bank and know the Webster [adviser] and trust them, it can be a good thing," Mr. Janowski said. "But going out and getting your own robo account can be cheaper."

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