JP Morgan is rolling out a robo-adviser with free ETFs to lure new investors

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Kelli Keough, left, global head of digital wealth management and Jed Laskowitz, a J.P. Morgan veteran who runs You Invest.

Source: JP Morgan

J.P. Morgan Chase is making another bid to persuade banking customers to invest with the firm – this time, with a low-cost robo-adviser.

After a year of fine-tuning, which included user trials at 27 branches in Brooklyn, the New York-based bank is releasing on Wednesday a digital investing service called You Invest Portfolios. For an annual fee of 0.35% of assets, or 35 basis points, J.P. Morgan will put users into an investment portfolio made up of the bank’s exchange traded funds, or ETFs.

That fee is in line with what competitors from Morgan Stanley to Wealthfront charge for similar services, but unlike most rivals, the bank is waiving fees for the underlying investments. The ETFs J.P. Morgan will use range in cost from about 2 to 50 basis points, and users will typically save an average of roughly 15 basis points in fees through the service, according to Jed Laskowitz, the J.P. Morgan executive who runs You Invest.

“We think we’re offering really great value at 35 basis points given the integration with the Chase experience and our rebating of all of the underlying ETF expenses,” Laskowitz said.

The move by J.P. Morgan represents its push to grab market share from competitors and broaden the pool of Americans who are invested in the stock market. Only about half of Americans own stock through mutual funds, retirement accounts or individual equities, and just 31% of those below the age of 30 own shares, according to a 2017 Gallup report.

$2,500 minimum

By leaning on digital channels, the biggest U.S. bank can profitably manage portfolios for people with as little as $2,500, which is the minimum for its new product. Banks with full-service financial advisers typically target investors with far more money.

J.P. Morgan could cut the management fee on You Invest Portfolios further for those who invest more with the bank, according to people with knowledge of the bank’s planning.

That would echo its approach with You Invest Trade, the companion service unveiled last year that includes unlimited free trades for preferred clients. On the day it was announced, the news wiped out more than $5 billion from the total market capitalization of online brokerages including Ameritrade and E*trade.

In a 2016 investor conference, J.P. Morgan CEO Jamie Dimon hinted at this approach, saying that he could give clients free brokerage trades or a no-cost robo-adviser as part of a bundle of digital banking products. He likened it to the approach Jeff Bezos took with Amazon’s Prime subscription service.

Robo-advisers were pioneered a decade ago by upstarts Wealthfront and Betterment, which used algorithms to pick low-cost investments suited for a customer’s risk appetite. Mutual fund giants including Vanguard and Blackrock soon released their own versions, and banks with big wealth management arms like Morgan Stanley and Bank of America followed suit.

Without human advisers and salespeople, the new services all undercut the pricing of full-service brokerages, which typically charge at least 1 percent of assets under management. Driven by gains at Vanguard and Charles Schwab, the robo industry has grown from almost zero in assets in 2012 to more than $1 trillion by next year, according to consulting firm A.T. Kearney.

Source: JP Morgan

Both J.P. Morgan’s digital brokerage and its new portfolio service operates within the Chase mobile app and website, which has more than 50 million users in the U.S.

The brokerage service is designed for people who want to be more involved in their investments and are perhaps already investing with a competitor, while the robo-adviser targets first-time investors, according to Kelli Keough, J.P. Morgan’s global head of digital wealth management.

“Portfolios is really geared towards somebody who’s just starting out with its $2,500 minimum,” Keough said. “You can easily move money from any of your accounts into it. There’s no different place to go. There’s no new app to learn, as you might see in other places.”

More features coming

The bank puts users into one of four portfolios, which range from conservative to aggressive growth, according to Keough. Unlike some competitors, the J.P. Morgan portfolios are built and managed by humans and are invested in passive and active ETFs.

J.P. Morgan tested the automated investing service with employees last year and expanded it to the bank’s Brooklyn branches earlier this year, according to the executives. Feedback from customers helped it streamline and simplify the service, removing steps from on-boarding and adding alerts, they said. The bank also took time to train employees at call centers and the firm’s 5,000 branches on the new products.

Like with any digital product, J.P. Morgan is planning a series of upgrades to You Invest, including an update next month that adds options trading and the ability to track investments held elsewhere.

By next year, they want to cut the minimum investment required for Portfolios to as low as $500 and potentially add a hybrid account that includes more human service, according to Laskowitz.

“A lot of people want to get started investing, but they don’t think they have enough money to start,” Laskowitz said. “This really encourages people to get started with a little bit of money.”

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