Will Walmart offer wealth management products?

Walmart announced on Monday it is forming a fintech startup in partnership with Ribbit Capital, the global investment firm backing fintechs like Robinhood and Wealthfront, in a move that could potentially make the retail giant a major player in digital wealth management. 

The purpose behind the new fintech, according to a Walmart spokesperson, is to create a suite of digitally enabled financial products that are tailored to Walmart’s customers and employees. However, the list of exact products and timeline is still being developed, according to a spokesperson.

While Walmart hashes out the details, industry analysts and advisers are speculating about the impact of Walmart’s potential entrance into the wealth management sector. The retail giant’s scale and reach makes it an attractive distribution channel to further expand investing to underserved segments of the population, according to Backend Benchmarking’s head of research David Goldstone.

“Whether the Walmart customer base will be attracted to investment products remains to be seen and will depend on what Walmart plans to offer,” Goldstone said. 

For perspective, if just 1% of Walmart’s current weekly customer base, about 265 million consumers globally, were interested in financial planning, the company could instantly create 2.65 million financial plans. 

Walmart already has the financial services foundation to execute a wealth management offering. The company offers the Walmart Credit Card, Walmart Money Card, check cashing, money transfers and installment financing, according to the announcement. 

In that light, it is likely that Walmart’s first focus will be helping its customers and employees with their cash and debt management needs, said Sophie Schmitt, senior analyst with Aite Group. “Walmart could also be looking to piggyback on the success of their high-yield savings account to offer a more complete banking service online to start off,” she said.

Still, Schmitt isn’t ruling out the retail giant’s potential to tap into investing and add financial coaches to its suite of offerings.

There are plenty of avenues for Walmart to enter investing, such as using investments as rewards tied to in-store purchases, Schmitt said. “Specifically, earning portions of stock of companies they are purchasing products from — Stash pioneered this with its debit card.”

If Walmart does add advisers, they would likely act more like financial coaches or consultants. “These individuals would be salaried versus earning compensation tied to selling investments,” she said. 

When it comes to democratization of financial planning, Walmart first needs to implement the right financial education for their client base, Schmitt said.

PROS AND CONS

The potential entrance of a huge corporation like Walmart into wealth management has some advisers weighing the pros and cons.

Overall, some advisers believe Walmart’s efforts to democratize financial planning are important developments for the industry overall, said Richard Raybin, CEO and Founder of Lifetime Capital Group. “Following in the footsteps of the pioneers who broke Wall Street’s stranglehold on investment performance when they developed index funds, [Walmart] has the potential of helping millions of families improve their financial situation; in this case by making better financial decisions, which should be the mission of every financial planner.” 

Bob Cortright, CEO of DriveWealth, said he doesn’t believe Walmart will run into any regulatory pushback because the company isn’t looking to be a full-fledged brokerage.

“What [Walmart] wants to do is offer their customers and employees cost-effective ways to invest in the future,” Cortright said. “This is an opportunity for Walmart to offer top-end financial products no matter the current circumstances of the end user, whether they have $50 or $500 to invest.”

While the advisory community speculates what’s to come from the Walmart and Ribbit Capital fintech venture, advisers should start thinking about whether they can continue to defend their high fees as more fintechs enter the space with cheaper alternatives, said Lou Abrams, founder of adviser tech startup Fisecal. 

“Walmart would be a huge player in the ongoing fight to democratize financial planning for everyone and could use its size to reduce the cost of financial services, just as it has forced countless companies to cut the price of their product,” he said.

Related Topics: Ribbit Capital, Robinhood, Walmart, Wealthfront Inc.