‘Nothing is stopping’ Google from entering wealth management
Google's newest project takes aim at traditional banking, but wealth management may not be far off.
The search engine giant's entry into banking can be partly traced to the recent efforts by fintechs to evolve beyond investing and financial advice through bank partnerships. And just as those partnerships have rapidly grown, there is little to prevent Google from teaming up with a broker to launch a wealth management pilot too.
“Potentially, if Google got cleared to conduct a brokerage business, they could move in any direction they want,” says Greg O'Gara, a senior research analyst at Aite Group.
In the past year, several micro-investing apps and robo advisors have partnered with traditional financial institutions to leapfrog regulatory hurdles and quickly expand into checking, savings and lending. Google is emulating the model to launch its checking account pilot next year. (Google is pairing up with Citigroup and a Stanford University credit union, according to Bloomberg. The news was first reported by The Wall Street Journal.)
The partnership approach has circumvented the regulatory hurdles that financial services experts have always predicted would be a barrier for entry for big tech.
For example, instead of seeking its own bank charter, Apple partnered with Goldman Sachs to launch its credit card in March, a deal that gives Apple control over the product’s branding and user interface.
“Cash is a very easy commodity to generate income on and once you attract clients you can cross-sell anything,” O’Gara says. “There really is not much that would stop them from building out a broader investment platform. With the right regulatory oversight, nothing is stopping them.”
It remains to be seen, though. Google did have one product before, Google Compare, that compared different financial products for consumers, and potentially could have shifted into robo advice, but it was shuttered in 2016.
Another reason why a move by Google to wealth management may not be imminent is because the current economics of the digital financial advice space are tough, given the deluge of existing competition, high customer acquisition costs and increased pricing pressure as the industry shifts to zero commissions in trading.
“With the increasing interest in lower-cost investing options, the financial industry’s margins are already in decline,” said Scott Smith, director at Cerulli. “Becoming a late entrant in a declining-margin business offers little appeal to large, profitable technology providers.”
Adding banking, on the other hand, has been a focus as of late for a number of wealth management fintechs and some RIAs.
Upstarts such as Wealthfront, Betterment, Acorns, Robinhood, and even some large RIAs and custodians have all introduced checking and savings accounts, in addition to lending products.
Acorns already rolled out a laundry list of new financial products like Acorns Spend, a debit card made of tungsten, and a retirement account, called Acorns Later, which has built up 170,000 accounts in just two months, according to the firm.
Earlier this month, Schwab CEO Walt Bettinger said in his keynote talk at the company’s annual Impact conference that while the custodian already has a bank, the company will be getting into “different types of lending” that RIAs can offer, possibly including mortgage lending, unsecured loans for clients and loans to advisory firms.
Wealthfront’s Andy Rachleff has long expressed his desire to deliver a service where clients direct deposit a paycheck on the platform and the robo automatically pays bills and reroutes the remaining money toward investment goals.
Carson Wealth became one of the first big advisory firms to offer checking accounts to clients in May. Through a partnership with the digital banking provider Galileo, Carson’s RIA clients have access to a Mastercard-branded debit card, online bill pay, direct deposit options and the ability to use tens of thousands of ATMs, according to the firm.
“We view Amazon as the competition,” Ron Carson, CEO of Carson Wealth Management, told Financial Planning after the Apple credit card launch in March. “Whenever they decide to get directly into our business, we have to be prepared. They haven’t yet because there is just so much low-hanging fruit. But, they are coming.”
The concept of convergence is behind the recent partnerships that are mashing together banking and wealth management.
“These firms want to create a one-stop shop for financial services, in which, the client’s money is always at work,” says Will Trout, senior analyst with Celent. But tech giants are not looking to supplant financial advisors or bankers outright, Trout says.
“They would rather leverage their ubiquity, control of consumer data and iconic cultural status to facilitate the flow of money — including via partners like Citi — to the extent they become irreplaceable components of the financial services ecosystem.”
While advisors shouldn’t expect direct competition for clients from big tech, it’s not a stretch to think one may offer a new platform, like a wealth management integration that RIAs might then adopt, says Linda Erickson, founder of the eponymous RIA in Greensboro, North Carolina.
“I can't see [big tech firms] replacing my money management skills,” Erickson says. “Where money management is a commodity — not personalized — maybe they will develop a better approach than robo advisors. I doubt client relationships will be entirely replaced by artificial intelligence.”
Still, automated advice continues to defy the industry’s initial growth expectations. Assets under robos should grow by 27% a year, hitting over $2.5 billion by 2023, according to Statista.
There’s no reason that a big tech firm wouldn’t want to join that market under the right conditions, Aite’s O’Gara says.
“Tech has scaled investing products across all demographics that has given retail investors 24/7 access to the markets,” he says. “Essentially nothing is going to stop the democratization of investing through technology and once one of these [big tech companies] makes an imprint on the broker dealer landscape, the growth prospects are very, very good.”