Why Amazon is moving into finance, and what it means for advisers

The moment many have long speculated, and feared, is finally here — Amazon is entering the financial services world.

As first reported by the Wall Street Journal, Amazon is in talks with large financial institutions including JP Morgan Chase to explore a new “checking-account-like product” it could offer retail customers. While the conversations are early and there are no immediate plans to offer any sort of digital advice, advisers still need to take notice.

“Advisers have their head in the sand; they are in denial,” said Ric Edelman, the founder and executive chairman of Edelman Financial Services. “Many think this won’t affect them or their clients. I think most advisers are wrong. There were probably a large number of buggy manufacturers that were saying the same thing in 1910.”

Mr. Edelman said it’s inevitable that large technology companies like Amazon, Apple, Google and Microsoft look to expand into other industries.

Technology companies see financial services as the “last mile” of commerce, said Jim Sinegal, a senior equity analyst at Morningstar who covers financial services. They already dominate the search and advertising side of things, but finance still controls payments, rewards and consumer loyalty.

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Amazon also owns a vast trove of data on consumers’ income and spending habits, which sets them up to disrupt traditional financial institutions.

“Financial data is arguably the most valuable type of customer data and will only grow in value as analytics become more sophisticated,” Mr. Sinegal said.

Perhaps most notable is that Amazon isn’t reportedly trying to launch its own bank, but would partner with existing large firms. Regulation has historically separated banking and retail, and other companies, like Walmart, have failed to launch their own banks.

By partnering with a firm like JP Morgan, Amazon could “meet a much wider range of its customers’ financial needs, gather additional data, and provide an additional revenue source while avoiding the heavy regulatory costs of a traditional banking financial institution,” Mr. Sinegal said.

It would also give JP Morgan, or any other financial institution that partners with Amazon, a massive new distribution channel and access to Amazon’s cutting-edge technology.

But would that result in a robo-adviser?

It’s certainly feasible, said David Goldstone, the head analyst of BackEnd Benchmarking’s Robo Report. Another giant online retailer, Overstock.com, already offers digital advice.

But that doesn’t mean it will be a priority for Amazon.

“Adding a robo advice solution makes the most sense for companies where digital advice fits into a larger business model and there are potential synergy or cross-sale opportunities,” Mr. Goldstone said.

Kyle Van Pelt, the vice president of partnerships at Risklayze, agreed.

“Bezos’ roots are in banking, but like the big banks today, I don’t know how excited he will be about wealth management,” Mr. Van Pelt said. “It’s probably the last thing to come. Checking, savings and lending will be first.”

Advisers still need to see this as a wakeup call that they need to rethink the value they provide clients, Mr. Edelman said.

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Advisers still promising clients nothing more than better investment returns for a lower fee will be left behind. To survive, they have to adopt services that Amazon can’t offer online, like career and longevity planning, or personal involvement with the family, he said.

Joe Duran, the chief executive of United Capital, has long predicted Amazon’s move into financial services and said it’s natural considering how much Amazon pays on transactions processing. He said even if an Amazon robo isn’t imminent, advisers need to at least be paying attention.

“Anytime Amazon does anything, it has massive implications for everyone,” Mr. Duran said. “Whatever they negotiate with a bank, it will have a significant ripple effect.”