What ‘Digital Investment Advice’ Product Is Northern Trust Building?

When a money manager that controls $1.1 trillion decides to build a new digital product, the effort deserves attention. But what exactly does Northern Trust Corp. mean when it reveals that it is building a "digital investment advice product," as it disclosed last week? Chicago-based Northern Trust is seeking a "digital investment advice product owner" to launch a new product “in a rapidly transforming domain, with the support of one of the largest Asset Managers in the world.” A source at a digital banking startup told Bank Innovation that it appears the firm is working on some kind of robo-advisor. Russell Raath, president of Kotter Consulting, an advisory firm, said the development of a digital advice platform by “one of the premier names in the wealth space” is of interest because it’s “a smart way" of providing an advisory solution, potentially to a mass audience, at a relatively low cost. “This is something that neither Vanguard nor Fidelity were first movers on, unlike the group that included Betterment , but, clearly, Vanguard and Fidelity have an outside share of this market now,” Raath said. Raath said Northern Trust has not been widely known as a “go-to” firm for investment solutions for the mass market, but it has a strong brand. “This foray into a digital offering, i.e. not white-glove/hands-on, could be one smart way of broadening their appeal to a new type of customer,” Raath said, adding some mass affluent clients could easily experience wealth accumulation that would shift them into the ultra-high-net-worth category. Chairman and CEO Michael O'Grady during the company’s 4Q18 earnings call in January acknowledged some pain points for institutional clients that Northern Trust wants to address. For asset owners, he said, it’s about creating an “appropriate data model,” perhaps using realtime data, depending on what the needs of the client are. “It would be easy to say, ‘I want perfect data that’s realtime,’” O’Grady said. “We can provide that, essentially. But in providing that, that is a higher cost model to be able to provide that to them, as opposed to a model that is either on a daily basis or some other basis.” He said those higher costs could be worthwhile for clients actively managing their investments. For asset managers, O’Grady said, it’s about helping them provide “much more of a digital experience for the client.” He said the firm is “investing significantly” in its fund services platform, meaning both fund accounting and transfer agency functions. But Raath said if Northern Trust can serve more mass affluent clients, it can grow and protect a more organic growth plan. However, this isn't without hazard. “If this move is to open up the client base to more potential/future clients, one dimension that Northern Trust will need to consider is the impact to their brand,” Raath said. “Known as a private bank and wealth manager to the UHNW clientele, how do they articulate their value proposition as a provider of digital solutions to a mass affluent market?” He said he did think broadening its client base would be a “smart” option for Northern Trust to explore. “Differentiation remains key, however,” he said, adding the firm’s product would likely not be as good as Vanguard's solution or Fidelity's solution, and it can't just compete on features when there are tools out there like Betterment's Tax Loss Harvesting . “A differentiated client experience is what sets Northern Trust apart from competitors, and it is harder to differentiate a client experience when AI and a digital platform is the basis for the offering,” Raath said. As of the end of 2018, Northern Trust’s total assets under custody decreased 6% year-over-year to $7.6 trillion, while total assets under management declined 8% to $1.1 trillion. Northern Trust did not respond to Bank Innovation ’s requests for comment. <em style="margin: 0px; padding: 0px; border: 0px; font-size: 16px; vertical-align: baseline; box-sizing: border-box; color: #00043a; font-family: 'Open Sans', sans-serif; font-variant-ligatures: normal; font-variant-caps: normal; font-weight: 400; letter-spacing: normal; orphans: 2; text-align: left; text-indent: 0px; text-transform: none; white-space: normal; widows: 2; word-spacing: 0px; -webkit-text-stroke-width: 0px; background-color: #ffffff; text-decoration-style: initial; text-decoration-color: initial;">Join us at Bank Innovation Ignite 2019 , March 11-12, at the Hyatt Olive 8 in Seattle. Register here.

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What ‘Digital Investment Advice’ Product Is Northern Trust Building?

Most FIs Don’t See Significant Value from AI, Report Says

ETF Fees Are Falling to Zero as SoFi Plans First No-Cost Funds

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