Robo-Advisors: A Key to Keeping the Community Bank Alive and Thriving

  • Posted by: Mark Allen, SVP of New Ventures

[EasyVest images] Laptop with investments

Approximately $30-to-$40 trillion in assets are expected to transfer from the Baby Boomer generation to their children and grandchildren in the next two decades. This wealth transfer has the potential to fundamentally change the way community banks conduct business and serve their customers. What is happening?


The generations inheriting this wealth are opting, even preferring, banks with robust digital banking services. According to the BAI Banking Outlook survey, BAI found more than 60 percent of Millennials and Gen Z consumers would switch their primary financial service organization for better digital banking services. Furthermore, those inheriting this sum have interest in investing. Today, most community banks are unable to provide these services, and if they do, it is usually through an outside brokerage firm. Community banks looking to meet the digital demand and keep their existing wealth inside their institutions must ensure digital banking resources, especially investment services in the form of robo-advisors, are part of their digital strategy and in place for customer use soon.

The Vital Benefit of Robo-advising

Robo-advisors shine as they bridge the gap between those able to afford traditional wealth management services and those looking to invest, but lack the required assets. Keep in mind, traditional wealth management programs tend to cater to those with assets of over $250,000, a threshold only approximately one in six millennials meet. This is due – in part – to a reliance on in-person, manual investment counseling. This method leaves community banks who offer wealth management services with a two percent utilization, which is unsustainable for long-term success.

Robo-advisors provide an intuitive, low-cost way for community banks to provide an investing service to customers with little additional management and no exorbitant cost. These solutions leverage automation to manage investments and allow customers with small dollar amounts to create and review their portfolios. It is worth noting that robo-advisors are not designed to replace the traditional wealth manager model. In fact, robo-advisors can be the first step for many community banks looking to offer wealth management services. Yet, they are vital for a customer base who is eager to ensure they can invest now in order to have successful futures.

Competition from Non-Industry Players

Increased interest in digital investing by Millennials and Gen Z not only has community banks looking to attain these customers, but non-industry fintechs are on the hunt as well. Non-industry players such as Acorn, Robinhood and others understand the gap that exists between Millennial and Gen Z’s interest in investing and their ability to do so. Because of this, non-industry players are making gains in bank market share.

Unlike these tech companies, community banks have a far better advantage in retaining the customers' business. Non-industry players lack the complete picture of the customer as told by their financial data in the core. Community banks who properly understand the value of this data can leverage it to provide AI-driven support and financial help. This then enables the robo-advisor to take lion’s share of the portfolio management. Offering automated investment management through online and mobile banks cuts out any extra steps and makes the process that much easier for the customer.

The Burgeoning World of ESG

Younger community bank customers not only want to invest, but want choice in their investing. According to Morgan Stanley’s 2019 Sustainable Signals study, 85% of consumers are interested in sustainable investing, up 10 percentage points from 2017. Consumers are increasingly acting on these beliefs, with 52% of the general population and 67% of Millennials taking part in at least one sustainable investing activity.

The right robo-advisor supports environmental, social and corporate governance (ESG) investment options to appeal to younger generations and give them the opportunity to invest in alignment with their beliefs. It makes investing in ESG portfolios simple and affordable with a low initial investment and seamless integration into online and mobile banking.

It’s a Win-Win

During a time of historically low interest rates, non-interest income is critical for community banks that want to stay successful. Community banks looking to keep existing wealth inside their institutions must ensure digital banking resources, especially investment services in the form of robo-advisors, are part of their strategy. Robo-advisors should not be viewed as an add-on service, but as an integral part of a financial institution’s digital strategy. The addition of a digital investment service with a low barrier of entry creates more touchpoints for the customer and their bank to not only engage, but to build a lasting relationship. The more services like this a community bank can provide, the more they demonstrate their distinctive value.

Preparing for the Rise of the Robo-Advisor

As more financial institutions take advantage of digital investment services, it is critical for community banks to be prepared and offer tools that will appeal to younger generations. Watch our webinar recording, “Five Things to Know About the Rise of the Robo-Advisor”, to see how robo-advisors attract younger consumers and capture your financial institution’s fair share of the generational wealth transfer.

Mark Allen, SVP of New Ventures
Author: Mark Allen, SVP of New Ventures
Mark led two successful CUSOs as CEO over 26 years and is an industry-recognized expert in building broker dealer insurance and lending businesses for digital and mobile channels.