Following strong second quarter earnings for its wealth management unit, Wells Fargo's executives said the firm was considering developing robo advisor technology.
Chief Finance Officer John Shrewsberry said during a call with analysts that the firm had undertaken a variety of initiatives in wealth management "to modernize and create service capability to attract new investors and to better serve the investors that we have."
"At some point, it could even include a service or capability that competes with some of the robo advisory people out there today who rely primarily on technology to construct portfolios and make offerings to customers," he said.
Wells Fargo has multiple advisory channels, including an independent broker-dealer and a unit that serves ultrawealthy families. Should the firm develop a robo advisor, then it would wade into an increasingly crowded robo market primarily aimed at less affluent, younger investors. Though robos are still a relatively miniscule portion of wealth management – 0.1% according to Corporate Insight – industry giants like TD Ameritrade and Charles Schwab have joined startup firms like Betterment in developing robo advisors.
Minimum account sizes for many robo advisors are typically lower. For example, Wealthfront recently lowered its minimum from $5,000 to $500.
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CEO John Stumpf, noting that the company serves a wide range of consumers, said that developing these technologies would meet Wells Fargo's strategy to be broadly diversified.
"We see this as one of the most attractive growth opportunities in the company," Stumpf said.
Uday Singh, a partner at global management consulting firm A.T. Kearney who co-authored a recent report on the development of robo advisory firms, says that the technology meets the needs of an underserved market.
"Most banks realize having an offering ready will be a positive," Singh says. "Given the size of technology budgets that banks have, investing and creating an offering is a no-brainer. They can either buy the technology or create it. Either way it sounds like a wise investment."
He notes that some firms remain small startups.
"A firm like a Wells or Schwab has the balance sheet that allows for massive spending of marketing dollars, and they can create brands that can eclipse upstart brands pretty quickly," Singh says.
Wells' technology upgrades will affect other areas of wealth management, such as mobile apps and online offerings for clients, Shrewsberry said during the call.
"All of those are opportunities for us to make the business even stronger and more relevant going forward, on top of what we feel has been very good performance," Shrewsberry said.
RISING WEALTH PROFITS
Wells Fargo reported on Tuesday that profits for its Wealth, Brokerage and Retirement unit grew 11% year-over-year, rising to $602 million from $544 million for the year-ago period.
Total revenue for the unit, which includes the firm's employee and independent advisors, grew to $3.7 billion from $3.5 billion for the year-ago period, a 5% increase. Noninterest expense climbed to $2.8 billion from $2.7 billion, a 3% increase.
The firm's headcount remained flat at 15,151 advisors.
Client assets for retail brokerage rose 1% year-over-year to $1.4 trillion. However, managed account assets rose 6% to $434 billion.
COMPANYWIDE NET INCOME DIPS
Wells is the first of the wirehouses to report earnings.
Overall, the San Francisco-based company said profits slipped slightly to $5.719 billion for the recent quarter from $5.726 billion for the year-ago period.
The firm said that total interest revenue grew 4% year-over-year to $12.2 billion, but total noninterest revenue fell 2% to $10 billion.
Noninterest expenses, meanwhile, rose 2% to $12.5 billion.
Earnings per diluted share rose to $1.03 per share from $1.01.
In a statement, the company's CEO said that the firm remains well positioned for future growth due to strengths in the fundamental drivers of long term growth.
With additional reporting from Suleman Din.