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January 13, 2016updated 31 Aug 2016 10:25am

BBVA Compass banks on robot advisors in fintech startup deal

News: BBVA compass becomes first major bank to partner with fintech firm FutureAdvisor.

By Charlotte Henry

BBVA Compass customers will soon have access to investment management advice provided by a robot, after it became the first major bank to sign up with FutureAdvisor, the data driven investment tool that is one of a growing number of so-called roboadvisors.

Later in 2016, the bank’s clients will be able to link external investment accounts with FutureAdvisor, which will provide them with a customised plan for their portfolio. Those who want to manage their portfolio directly will also be able to do so through FutureAdvisor.

The bank said that the service will include auto-rebalancing based on market movement and tax loss harvesting to help improve after-tax, risk-adjusted rates of returns.

FutureAdvisor is an always-on technology using a proprietary algorithm. It makes investment decisions based on theories developed by Nobel economics prize winners, which is also updated by a group of scholars and finance experts.

The software monitors and manages clients retirement and taxable accounts, taking a household-wide, long term perspective.

BBVA Compass Chairman and CEO Manolo Sánchez said: "FutureAdvisor gives us a way to connect more of our clients with convenient, affordable and trusted advice."

He said that "The ultimate goal here is to help our clients take greater control of their finances so they can build bright futures."

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FutureAdvisor is owned by BlackRock, after the asset management giant bought it in September 2015. On September 30 2015 BlackRock had $4.506tn worth of assets under management.

BlackRock chairman and CEO Laurence Fink said: "The role of technology in our industry continues to evolve as consumers increasingly look to engage with digital-advice platforms. FutureAdvisor powers an entirely new digital client experience for investors, which includes a diverse set of investment products, proprietary retirement technologies and risk analytics."

Roboadvisors are becoming increasingly prevalent in the wealth management industry, and partnerships are growing too. For example, leading Roboadvisor Betterment formed a partnership with Fidelity Wealth Management in October 2014.

Warren Mead, global head of fintech at KPMG said: "We expect an increasing number of the traditional investment managers to collaborate with fintech start-ups. The start-ups are keen to get access to the large customer base and for the incumbents it is a defensive play to bring their customers innovative products before their competitors do."

However, rivals such as Wealthfront have set themselves against major financial institutions, instead preferring to keep their distance in an attempt to woo millennials.

After a major funding round in October 2014 that brought in $64m and left the firm with cash reserves of $150m, Wealthfront CEO Adam Nash said that the money would help Wealthfront "retain independence from Wall Street."

Large finance firms themselves are also developing the technology. Major full service investment firm Charles Schwab rolled out its free roboadivsor service late in 2014, for example.

This is not the first move BBVA Compass has made into the fintech space either. Parent company BBVA bought digital bank Simple in 2015, and it also has an alliance with digital payments network Dwolla so account holders can send and receive funds instantly.

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