From the March 2017 issue of Investment Advisor • Subscribe!

Broker-Dealers Spotlight Technology

BofA-Merrill rolls out a robo, as Raymond James shares its latest tech plans and Morgan Stanley reveals its thinking on digital strategies

Several BDs rolled out tech enhancements last month. Several BDs rolled out tech enhancements last month.

While regulatory issues are keeping the wirehouse and other employee-advisor firms busy, other operational matters demand their attention, too. For several firms, technology developments have been the focus of recent announcements.

Bank of America said in February that its Merrill Edge mass-affluent platform will include Guided Investing portfolios. Investors with as little as $5,000 can use the service to obtain portfolios for 0.45% a year that are based on 10 portfolios comprising ETFs from fund families like Vanguard.

The open-architecture program is run more like a managed account than a self-directed account, says David Poole, head of advisory and client services for Merrill Edge. The new Merrill Edge service gives investors “access to strategies that are built and managed by the Global Wealth & Investment Management (GWIM) Chief Investment Office, not by algorithms,” and that are based on client investment preferences, priorities and time horizons, according to Poole.

“The program overall is a digital, online advisory program. It has an innovative and intuitive interface that is simple for clients to navigate,” he explained in an interview. “It's more in the advised spectrum [of online platforms], since we have a Chief Investment Office that designs, manages and continues to manage the portfolios” as the market shifts over time.

“It's truly the best of both worlds,” Poole added. The human side of Guided Investing, he explained, is that Merrill Edge clients have access to about 2,000 advisors working in Bank of America financial centers and bank branches. They can meet one-on-one with clients.

“There is a broad support network of individuals who are well-versed in advice,” Poole said. They are available, for instance, if clients want to discuss a shift in the market or a major global news event that could affect portfolios.

“Another advantage of the Guided Investing portfolios is that our Chief Investment Office can react to market events and convey messages that may calm nerves and share a ‘stay the course’ message — or make a change in the portfolios as needed,” the executive explained.

Merrill Edge has about $145 billion in client assets. Some industry research estimates that the demand for robo-investing services is about $80 billion. Vanguard's Personal Advisor Services has some $47 billion, for instance; its minimum account size is $50,000. Schwab Intelligent Portfolios have a $5,000 minimum and has accumulated over $12 billion in assets.

Managed Account Advisors is the official Merrill Lynch affiliate handling the portfolio management role for the Guided Investing strategies, which are based on GWIM CIO recommendations, the bank explains.

Meanwhile Bank of America CEO Brian Moynihan said recently that the bank is testing “completely automated” branches to cut costs. Dean Athanasia, co-head of consumer banking, discussed the new branches at a financial services meeting in Florida, according to a report in The Charlotte Observer.

The three automated small branches are located in Denver and Minneapolis. In addition to ATMs, they include video-conferencing technology that lets customers talk to offsite bank employees. But they do have an onsite banker, too.

The bank plans to review how much staff time is needed at the new branches. It also intends to roll out a voice-activated virtual assistant for smartphones, according to the news report.

Raymond James Ready to Robo

By year-end, Raymond James — which has more than 7,100 independent and employee advisors — will roll out Connected Advisor, its own digital advice platform. The platform includes tools to support more collaboration between advisors and clients, and boost data-driven capabilities.

“This significant, multiyear ongoing investment ensures we continue to be an industry leader in advisor-oriented technology,” said CEO Paul Reilly in a statement. “While many industry alternatives seek to disintermediate advisors, Connected Advisor will support advisors and their commitment to serving clients.”

About 300 branch managers and directors from several Raymond James channels had an introduction to Connected Advisor at a recent two-day meeting in St. Petersburg, Florida, where the company is based.

“The response from managers in the audience was quite positive,” said Tash Elwyn, head of the employee-advisor group Raymond James & Associates, in an interview. “This wasn't a surprise to them by any means. They know it's a vision we have been building toward with their input and that of the Technology Advisory Council.”

The idea behind the technology, Elwyn said, is to let computers do “what they do best” while allowing advisors to focus more of their time on “engaging […] and deepening relationships with their clients.” In addition, the platform moves the firm in the direction that clients are heading, he explained.

“We do lots of work on the client of the future,” the executive said. That client is female, younger and more technologically savvy than ever before — meaning that the client wants to work both digitally and directly with the advisor, he added.

Many of the firm's roughly 4,000 indie advisors will get a hands-on encounter with the platform at the Raymond James Financial Services conference set for April in Orlando. A pilot rollout of the platform, set for the third quarter, will include 25 advisors who are part of Raymond James’ technology council; after that introduction, Connected Advisor will be launched branch by branch, according to Bella Loykhter Allaire, head of technology and operations for Raymond James.

BDs Partner With Robo Providers

Some rival broker-dealers have chosen to give their reps robo-advisors via partnerships. LPL Financial, for instance, is working with BlackRock's FutureAdvisor, while UBS is partnering with SigFig. Charles Schwab, on the other hand, introduced Intelligent Portfolios in 2015 and aims to launch a hybrid robo-human service called Schwab Intelligent Advisory this year.

“Our new platform adds another […] layer of collaboration between the client and the advisor,” RJ's Allaire explained, along with “more sophisticated data mining and opportunities for client alerts from the advisor.”

“The ease of use has to be there to bring value to the advisors and clients via sophisticated alerts and accurate, complete data. That is the excitement of the platform. It's really about giving the advisors more ways to connect with clients, including communications […] and analytics. It takes it all in,” Allaire said.

Digital-Only Not a Long-Term Driver

During its fourth-quarter conference call with equity analysts, Morgan Stanley Chairman and CEO James Gorman described the analytics and trends that are driving its technology strategies. Gorman says that “the vast majority” of its clients “are attracted to the intellectual capital and product offerings that a firm like Morgan Stanley has.”

The wirehouse has about $2 trillion in client assets, he added, and “a very large percentage” of its clients are households with more than $10 million of investable assets. For clients with assets of $1 million to $10 million, the firm will “be building a lot of digital technology to support the financial advisors and the branch operations, and delivering online capability and services to those clients,” Gorman said.

The Morgan Stanley executive acknowledged that there are clients who “want to deal with a digital-only platform, and we’re sort of reserving the option to serve that client base.” However, the firm does not believe that in the “short, medium [and] maybe even long term it's going to be a large part of our business.”

“We’re not a pure online or direct player,” Gorman said on the call, “but we have that capability. I think the biggest opportunity, however, exists with providing online capability to existing clients who want a multi-channel relationship with us.”

Production Updates

In the fourth quarter, Morgan Stanley Wealth Management said it had about 15,760 advisors. Average annualized revenue (or fees and commissions) per FA was $1.01 million, while the average client asset level was $133 million per rep.

Meanwhile, Merrill Lynch said the average production level of its roughly 14,630 registered representatives stood at $964,000, with veteran advisors averaging production of $1.25 million.

Rival UBS says its 7,025 advisors brought in an average of about $1.17 million of yearly fees and commissions in 2016 and had average client assets of $158 million.

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