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Morgan Stanley’s Betterment Hire Flags Persistent Trend that Advisors Should Note

By Miriam Rozen September 12, 2018

When Morgan Stanley announced last week it had nabbed a top marketing executive from Betterment, an independent robo-advisor, the wirehouse’s management larded its bulletin with reassuring comments for any financial advisors worried about technological improvements seeding their obsolescence.

"He has first-hand knowledge of the primary importance of the financial advisor in serving the broad requirements of clients," Eric Heaton, head of Morgan Stanley’s Private Banking Group, said in the press release about the hiring of Paul Halpern, the former Betterment chief marketing officer. At Morgan Stanley, Halpern will serve as head of deposits and banking services for the Private Banking Group.

Morgan Stanley’s hiring of Halpern, however, underscores a trend that will certainly make robo-advising functions a larger part of most FAs’ worlds, according to Michael M. Wong, director of financial services equity research for North America at Morningstar.

“Digital advice is here to stay,” Wong says.

That’s true, even though independent, standalone roboadvisory firms have sputtered recently, he says. “Robo-advisors — which we defined as primarily digital firms that offer automated, semi-tailored investment portfolios direct to retail end customers — have failed to disrupt investment services incumbents and are still largely unprofitable. Many have sold themselves to established firms after realizing they can’t count on investors giving them money. Robo-advisor costs also present a challenge to profitability,” Wong wrote in a recent report.

The growth of digital advice will also persist, Wong says, despite “investors becoming a little more skittish on the independent roboadvisor model” — making it more expensive for Betterment and its rivals to raise capital.

Standalone roboadvisory firms’ recent struggles are countered by traditional wirehouses, such as Morgan Stanley, and banking centers, such as JPMorgan Chase, doubling down on their digital advice investments, Wong says.

“They will scale quickly and be profitable,” Wong says about the wirehouses and the banking centers’ stakes in digital advice.

What does that mean for the human financial advisors who work for the wirehouses and the banking centers?

Wong wants to wait to solidify his answer to that question. “It’s up in the air,” Wong says.

Most of the wirehouses “are committed to creating digitally-enabled advisors now,” he says.

For this story, Morgan Stanley did not provide further comment beyond its announcement of Halpern’s hiring.

But in December, Morgan Stanley launched Morgan Stanley Access Investing, a robo solution aimed at young investors. At roughly the same time, Morgan Stanley upgraded the digital tools and services available to its traditional FAs. It also revamped its training program so one-third of trainees are taught a digital-first approach to their work and are dispatched to branches where they may teach tech to veteran brokers.

For his part, Halpern will develop digital banking products and work with financial advisors on client engagement, according to Morgan Stanley’s press release. He will report directly to the Private Banking Group’s Heaton.

The banking centers also have also rolled out entirely stand-alone roboadvisory models. In a recent report by Cerulli Associates, “U.S. Private Banks & Trust Companies 2018: Fostering Growth and Digital Innovation,” researchers reported that “Many banks are being forced to adapt and implement significant changes to their business models. Digital innovation is transforming the wealth management industry with the introduction of digital advisors (aka ‘robo-advisors’), mobile technology, cloud computing, big data, and artificial intelligence.”

According to the Cerulli researchers, an overwhelming majority of banks are investing in technology to increase their competitive position (94%), acquire/engage and retain customers (81%), and increase advisor engagement/ productivity (75%).

(iStock Photos)

Some other firms, specifically Raymond James, have steered clear of any pure roboadvisor models and instead only upgraded digital tools available to advisors, Wong says. Raymond James’ management “has not talked much about roboadvisors and talked more about digital tools with your advisors,” Wong says. That stance is not a surprise since Raymond James has aimed to carve out a reputation as the industry’s friendliest house for advisors.

But wirehouses, including Morgan Stanley, may be aiming to pursue twin strategies — developing stand-alone roboadvising channels and digitally empowering FAs.

So, will the wirehouses ultimately embrace only the pure robo advisor model?

“That is another question,” Wong says, that remains unanswered — despite Morgan Stanley’s efforts to reassure advisors of their continuing significance in the wake of hiring Betterment’s CMO.