Is a robo-advisor right for your bank?

Christian M. Wagner, president of Penn Investment Advisors, is an advocate of a high-touch robo-advisory offering. Photo by Matt Stanley

Robo-advisory can be a cost-effective way for banks to enhance their wealth management and investing services. Community banks and vendors say that, with proper planning, these partnerships can generate noninterest income and bolster customer loyalty while maintaining high-touch service.

By Mary Yerkes


Wealth management services are an opportunity for many community banks that have not prioritized them in the past, whether due to a lack of sufficient capital or enough high net-worth customers to make it worthwhile. Today, however, some community banks are forging partnerships with robo-advisor providers in the hope of expanding their products while staying true to the relationship-based community banking model.

“The nice thing about robo-advisors is, if done correctly, you can build customer loyalty and generate recurring income.”
—Joseph J. Lebel III, OceanFirst Bank

“The nice thing about robo-advisors is, if done correctly, you can build customer loyalty and generate recurring income,” says Joseph J. Lebel III, chief operating officer and executive vice president of $11.3 billion-asset OceanFirst Bank in Ocean County, N.J. “Assets tend to be sticky if you do the right thing by the customer.”

Robo-advisor software uses computer algorithms to build an investment portfolio for a client and then manage it according to that client’s investment tolerance and goals. Because it’s an automated system, fees and minimum investment amounts tend to be lower.

OceanFirst Bank signed an agreement with Nest Egg, a digital financial services platform in Conshohocken, Pa., in late 2017. In December 2018, the community bank rolled out the platform to its employees. According to Lebel, the bank wanted buy-in from staff before introducing the technology to its customers. In January 2019, the offering went live.

“You can’t slap a robo-advisor on your website and expect a lot of traffic and business,” says Nest Egg’s CEO, Michael Church. “A lot of what we try to do is put the power back in the bank’s hands by creating an environment that focuses on the institution and its people.”

According to Lebel, OceanFirst Bank adopted a “hybrid robo-advisor” model. Customers can access the digital-first wealth management platform from a branch kiosk or engage in a video conversation with a Nest Egg advisor who explains products and how to access them. Bank customers can open an account with as little as $1,000.

Although the product is still in its infancy at OceanFirst Bank, the growth model is averaging a 50% increase per quarter. The community bank already has more than $50 million in assets in Nest Egg accounts for clients.

Partnership models

Penn Community Bank in Perkasie, Pa., opted for a different model for offering digital wealth management services to its customers. The $2 billion-asset community bank launched Penn Investment Advisors, Inc., a wholly owned subsidiary, to meet its customers’ investment needs, which, in turn, partnered with Folio Financial to provide the platform. This digital wealth platform streamlines back-office processes and features robust billing and compliance functions. Customers can open an account with $500.

“Our strategy is different,” says Christian M. Wagner, president of Penn Investment Advisors. “We have each and every robo-account assigned to an investment advisor who can guide clients through tough times. We love the high tech and the efficiency of being able to open accounts, but we also have an obligation to make sure we have the high-touch part.”

New customers log on to the digital platform and answer a series of questions, which determines their risk profile. An advisor then reviews the profile and talks with the client about their financial goals and future planning. Penn requires all of its advisors to maintain a digital account on the wealth management platform to better understand the customer experience.

Another robo-advisor model is Polaris Portfolios’ wealth management partnership program. “The Polaris model is very much a plug-and-play on robo advisory platform,” says Evan Kulak, wealth advisor and principal of Polaris Portfolios in Wellesley, Mass. “We don’t charge any of our partner banks to use robo-technology. It’s a true partnership.”

Polaris’ turnkey partnership model includes a digital client portal, a dedicated financial advisor, managed investment portfolios and co-branded marketing collateral. There are no upfront or ongoing costs to community bank partners, and the system takes about a week to install.

According to Kulak, the company’s investment offerings include managed portfolios, mutual funds, exchange-traded funds (ETFs), stocks and bonds. And there are no commissions or trade fees and no account minimums. However, Polaris does engage in a revenue share agreement, which, according to its brochure, creates noninterest income for banks.

Finding the right partnership

Models like these may be attractive to community banks with customers in need of wealth management and investment services. But, before offering a digital wealth management platform, experts suggest developing a business and marketing plan that is unique to your bank and customers. “It’s not an ‘if-you-build-it-they-will-come [kind of product,]’ ” Kulak says.

When determining if robo-advisory technology is right for your bank, Church suggests considering the option of a blended model that combines new technology with the close customer service offered by community banks. Leverage the technology, he adds, but keep the power in the hands of the bank.

While some companies offering robo-advisors may be friendly to community banks, some digital wealth management platforms are positioning themselves to compete with community banks by expanding their offerings to include checking accounts, credit and debit cards, and other traditional banking services. Most importantly, Church says, find a partner that caters to community banks.


Mary Yerkes is a writer in North Carolina.

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