Bringing a robo-advisor to checking adds a natural, low-inertia, low-cost investment option for customers, and elegantly completes the liquidity-savings-investments trifecta. It naturally fits into a digital banking offering, which has strong appeal for millennials. Finally, as customers accumulate assets and their needs become more complex, banks should be able to realize the ‘option value’ of this product by ‘graduating’ customers into full-service advice offerings.
The simplest use case on how this could work is as follows. A customer selects a checking package which includes a robo-advisor. She is prompted to fill out a simple questionnaire on her investing objectives and risk appetite. She allocates funds to be managed by the robo-advisor, and can set up automatic deposits from her checking account. Beyond this, a bank can add other functionality over time, such as aggregating other financial relationships, budgeting and spend management, and broader balance sheet advice.
Banks should seriously consider redesigning their checking value proposition to include and emphasize this investment offering. This adaptation would help a client easily move an appropriate amount of their funds from low return (but safe) deposits into higher return (but riskier) investments that would be managed automatically. Subsequently, banks can consider establishing a service model that thoughtfully graduates customers to full-service advice offerings as their needs progress over time. Sceptics will argue that migrating deposit balances to investment balances is a significant risk – and they would be right. But we believe that with a product that is appropriately designed and targeted, the true cannibalization would be minimal while the appeal to a segment of clients would be significant.