What if Walmart Launches a Robo-Advisor?

When wealth management executives are asked, “what keeps you up at night?” or “what are you most worried about?” their usual responses haven’t been about their fears of losing market share to current rivals or any of the annoying startups backed by venture capital.

Rather, their real anxieties are laser-focused on what could happen if the big tech titans like Amazon, Google or Apple finally turn their disruptive appetites on the business of financial services.

After all, these goliaths have had a devastating history of wiping traditional industries off the face of the planet and replacing them with their brutal efficiencies, cost savings, elegant interfaces and middle-man crushing technologies to provide a better customer experience.

In fact, if they even start sniffing around a particular industry, stock prices get hammered. Case in point: When Amazon acquired Whole Foods, all bets were off in the traditional industry of food distribution.

To date, wealth management has been insulated from the reach of the tech titans by, of all things, regulation. These titans have said many times that they don’t like highly regulated industries and there are so many more fruitful markets still waiting for them to dominate.

Also — and probably the biggest barrier to entry — is that the current wealth space already is an oligopoly of trillion-dollar companies. These firms are highly entrenched brands that have invested massively in technology, driving many costs to zero; much of the middle-man distribution inefficiencies have been commoditized, dramatically reducing competition.

In many areas of financial services, though, there are expensive, clunky and manual processes that remain part of product manufacturing and distribution in the legacy businesses of mutual funds, insurance products and the like — and this does open the door for a non-traditional goliath to exploit.

800-Pound Gorilla?

Let’s consider the one 800-pound Gorilla that hasn’t made the list of what keeps wealth management leaders up at night: Walmart.

The world’s largest retailer typically isn’t thought of in the same disruptive categories as the tech titans, yet the potential is there for it to completely re-write the distribution and delivery of financial services, forever altering the comfortable, highly profitable world in which many of the industry still lives.

Thus, when news broke in January that Walmart had created a new fintech start up with venture capital firm Ribbit Capital to develop and offer “modern, innovative and affordable solutions,” the REM sleep cycles of asset manager, broker-dealer and insurance company executives probably were cut in half.

“For years, millions of customers have put their trust in Walmart to not only save them money when they shop with us but help them manage their financial needs,” said John Furner, president and CEO of Walmart, in a statement announcing the new strategic partnership with Ribbit Capital.

Of particular worry to the wealth management industry is that Ribbit Capital has real experience in this area, having been behind fintech startup successes such as Robinhood, Credit Karma and Affirm. This means the combination of Walmart and Ribbit could be the beginning of something truly disruptive.

“When we combine our deep knowledge of technology-driven financial businesses and our ability to move with speed with Walmart’s mission and reach, we can create and deliver financial offerings that are second to none,” added Meyer Malka, managing partner of Ribbit Capital, in the announcement.

The Fallout

What will this mean to us in the cushy world of wealth management? What happens if Walmart does launch a robo advisor or a robo insurance platform?

Should we be worried? After all, financial advisors — for the most part — have been immune to the technology changes driven by the entrance of digital players over the last decade.

In fact, many of the innovations developed by these early VC-backed entrants largely have been embraced, extended and commoditized by the big financial services brands, such as Vanguard, Schwab, Fidelity, and Merrill Lynch. So what’s the big deal?

Before we answer that question, let’s review the data that highlights Walmart’s massive reach. In terms of revenues, Walmart generated $524 billion in its 2020 fiscal year.

That’s a staggering number compared with revenues one of the financial industry’s largest players, Fidelity, which had a touch under $21 billion in that same time period. And in terms of yearly e-commerce sales, Walmart had nearly $40 billion, so it’s no slouch in the digital arena.

Also, Walmart employs 1.5 million people and has nearly 5,000 physical store locations in the United States alone. In comparison, Schwab-TD Ameritrade has 400 offices, and Fidelity has 180 locations. When it comes to clients, Walmart is truly an outlier, serving more than 265 million people each week, while Fidelity serves just over 30 million investors across its many business lines.

To sum up, Walmart is roughly 25 times larger in revenues, 30 times larger in terms of the number of physical locations and nearly 10 times bigger when it comes to the size of its customer base than one of the largest financial services companies in the world. That should keep all of us awake at night.

Who Win? Who Loses?

Of course, there is some history that shows what happens when a physical retail operation wades into financial services. The answer: not good.

Remember the “socks and stocks” debacle that retailer Sears attempted in the 1980s by placing stock brokers in its stores after its failed attempt to diversify into financial services with its acquisition of Dean Witter? Overstock.com launched a robo advisor two years ago to much fanfare, yet it yielded zero assets.

Is this time different? Probably, given the track record, reach and potential of the new Walmart fintech venture. Who will be the winners and losers at this inflection point?

Winners are professional advisors focused on financial planning, relationships and a behavioral finance approach, who once again should rise above and continue to separate themselves from any tech offering, regardless of distribution reach.

Experience has shown over the last robo-decade that advisors have successfully harnessed new technological innovation for their own businesses, and when it matters most, people will pay a premium price for professional help in managing their money.

They simply want to talk to a human when it comes to the very personal issues involved in meeting their goals and making the most of their financial resources.

In fact, as Walmart builds out a massive investor base, these types of advisors may very well partner with the Walmart venture to garner referrals for Walmart clients who have more complex needs as their wealth grows.

However, those advisors who only sell products and are transaction-based may very well be pushed out of the mass affluent marketplace, as technology and distribution reach replaces this transaction business with a much lower cost-structure and devastating operational efficiencies.

Other potential losers square in the sites of this Walmart-fintech juggernaut likely will be any firm in the financial services distribution game, including broker-dealers, asset managers and life insurance product manufacturers. As Ribbit Capital’s Malka says above, knowledge + speed + reach = victory.

Regardless of what happens, this development confirms one thing: We are still in the early stages of our industry’s evolution as technology continues its digital transformation of everything and economies of scale become more powerful.

Timothy D. Welsh, CFP, is president, CEO and founder of Nexus Strategy, LLC, a consulting firm to the wealth management industry and can be reached at tim@nexus-strategy.com or on Twitter @NexusStrategy.

***

(Photo: BigTunaOnline/Shutterstock)