A robot hand using a laptop (Image: Shutterstock)

The digital advice market for the mass affluent, which began with online-only startups like Betterment and Wealthfront, is on the verge of morphing into yet another financial services channel dominated by the biggest firms, namely Vanguard and Schwab (which acquired TD Ameritrade). Even Goldman Sachs is expected to join.

The growing ubiquity of robo-advice means more investors than ever have access to these services, long before they amass enough assets to catch the attention of traditional advisors, according to a leading researcher in the space.

Vanguard already leads the robos in assets under management with $148 billion in its Vanguard Personal Advisor Services, but later this year the fund giant plans to offer an all-digital low-cost service called Digital Advisor. That offering will require a $3,000 minimum, far less than the $50,000 for Personal Advisor Services.

Schwab follows Vanguard in digital AUM, with $43 billion, then TD Ameritrade, which Schwab is acquiring, with roughly $21 billion. Eventually these assets will come under the Schwab umbrella once the two firms integrate their services, which is expected to take two to three years after the deal closes later this year. Both firms currently offer a no-frills and a premium digital advisor account.

Betterment and Wealthfront, the biggest independent robos, are next in terms of AUM, with  $22 billion and $23 billion respectively, including cash management banking accounts they have both introduced.

Fidelity offers a digital-only service, known as Fidelity Go, and a hybrid robo involving human advice called Fidelity Personalized Planning & Advice, but its AUM is not disclosed.

Attention now turns to Goldman Sachs, which along with rebranding United Capital as Goldman Sachs Personal Financial Management, recently announced plans to launch a wealth management robo offering for the mass affluent later this year, linked to its Marcus by Goldman digital bank.

Goldman will be joining other big banks and brokerages offering digital advisory services,  including JPMorgan, Merrill, Morgan Stanley, UBS, Wells Fargo and Citigroup, which opened its own robo just a week ago.

“The independents are getting better at being banks and the incumbents are getting better at becoming fintech firms,” said David Goldstone, head of research at Backend Benchmarking, which publishes The Robo Report.

Goldstone sees the robo business evolving, with firms “starting relationships with clients early” when they have just a few hundred or few thousand dollars in assets, then moving those clients up to premium accounts that include a human advisor as they accumulate assets and their financial lives become more complex. It’s at that point, during the step up to a second or third tier of services, when digital advisory services, including hybrids, become the biggest threat to traditional advisors, says Goldstone.

They won’t be trying to win over existing clients of traditional financial advisors but rather to start relationships with clients early on in their financial lives, then hold on to them as they age, converting those initial relationships into ones with professional management, explains Goldstone. “There will be big consequences maybe 10 to 15 years down the road.”

His message to advisors: “If you wait until clients have $250,000 or $500,000 in order to serve them, you will not get the business. Most [potential clients] will already have some type of relationship with another advisory service.”

The expansion of digital advisory services, including no-frills and premium services, will also create price pressures among those sponsoring firms and for traditional financial advisors, says Goldstone.

Vanguard expects to charge an all-in fee of around 20 basis points for its upcoming all-digital offering, which is less than the basic all-in fees for Fidelity Go and JPMorgan’s You Invest Portfolios (35 basis points) and for Betterment and Wealthfront (25 basis points), which exclude additional ETF fees. Schwab doesn’t charge for its plain vanilla Intelligent Portfolios, but its  average weighted expense fee is 21 basis points, according to The Robo Report.

The report ranks Vanguard’s current premium product in second place among robos overall and Fidelity Go in first place for the third consecutive time.

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