JP Morgan Enters the Fray, Vanguard Expands
All hands are on deck for automated investing. Shortly after closing Finn, its millennial-focused banking app, JP Morgan launched You Invest Portfolios—its new digital advisor with a minimum account balance of $2,500 and 0.35% advisory fee. With JP Morgan’s entrance into the digital advice space, there are only a few large U.S. banks that have yet to offer or buy a stake in a digital advisor.
Vanguard, the dominant player in the space, is piloting and is expected to soon release a new digital-only planning and investing product called Vanguard Digital Advisor. The new offering will have a $3,000 minimum and an all-in fee—management and underlying fund fees—of 0.20%, placing it in direct competition with providers targeting less affluent investors. In doing so, Vanguard will undercut Fidelity and JP Morgan, who both have all-in costs of 0.35%, and independents Wealthfront and Betterment, who have all-in costs of around 0.33% and 0.36%, respectively, depending on the portfolio chosen. Vanguard is increasing the pressure on a market already characterized by high levels of competition and slim margins.
The Battle Over Cash
The battle over cash is heating up, as upstart firms have been trying to lure customers in with new high-yielding checking and savings accounts. Wealthfront announced an extremely competitive 2.57% APY on cash deposits in June. Shortly after, Betterment announced a new cash product that would offer a 2.69% promotional rate for money deposited in 2019 to customers who open a brokerage and checking account. Both rates have since fallen following interest rate cuts by the Federal Reserve in July and September. Both Wealthfront and Betterment offer FDIC insurance on deposits.
While the industry has already witnessed a rapid expansion of savings accounts, digital advisors will continue to expand into day-to-day spending with checking and debit card products. This is part of a larger push by robos to expand into cash flow management to diversify revenue streams, expand beyond investing to more comprehensive personal finance platforms, and challenge traditional banks.
Acquisitions Grow Business and Add New Services
The third quarter saw increased consolidation and acquisitions as a means of product expansion. After buying a 10% stake in August of 2018, Capital One has fully acquired United Income for an undisclosed amount. United Income CEO, Matt Fellowes, says that the acquisition will enable United Income to accelerate innovation, but users will not be required to take any action. Capital One previously offered a hybrid advisor but it sold the product to E*Trade as part of a larger transaction in 2018.
Wealthfront acquired Grove Advisors—a financial planning startup and RIA. However, Wealthfront will not be acquiring Grove’s clients and their assets. Instead, Wealthfront will incorporate
Grove’s technology, which helps users automate financial planning, into its own platform. This initiative, labeled Self-Driving Money, aims to automate cash management for Wealthfront users.
SoFi, leveraging its earlier acquisition of LEAF College Savings, has augmented its SoFi at Work program by giving companies the ability to offer 529 plans for their employees.
Investing Becomes More Affordable Than Ever
No-commission trading swept through the industry this quarter. In September, Interactive Brokers eliminated all commissions on U.S. stocks and options and ETFs. Schwab slashed its commissions on the same trades a week later, followed shortly after by TD Ameritrade and ETrade. Ally and Fidelity eventually followed suit. Decades of lowering commissions have finally reached a bottom, as trading can now be had commission-free.
Ally Financial introduced a line up of “freemium” products, experimenting with a try-before-you-buy model in an effort to attract people less comfortable with investing. One product is an expansion of its Managed Portfolio offering that will charge no management fee but will hold 30% cash, which will earn 1.90% annually in interest.
SoFi Continues Aggressive Expansion and Spending
SoFi launched free cryptocurrency trading on its SoFi Invest Platform through a partnership with Coinbase, a major crypto exchange. Users can trade Bitcoin, Ether, and Litecoin alongside stocks.
This is just the most recent news from SoFi who has been aggressive in product launches, fundraising, and marketing. Earlier this year SoFi raised $500 million from the investment authority of Qatar and in September they announced their sponsorship of the new L.A. Rams stadium, a deal rumored to have a lifetime cost of $400 million. SoFi also announced in September they would be reimbursing customers for taxes caused by swapping newly launched proprietary ETFs into their customers managed portfolios without considering tax implications.
Profitability Arrives at $20 Billion in Assets
In a positive sign for upstart digital advisers, Betterment has announced that they have become profitable, and Betterment and Wealthfront both made headlines when they announced that they reached $20 billion in assets on their platform. According to Wealthfront, this is a doubling of assets since the beginning of 2019. We estimate a majority of platform assets growth has come from rising markets and cash accounts, not brokerage accounts.