The move into the robo-advisory space with ETFs by the Spanish bank reflects the huge size of both sectors. It cannot go far wrong with its new offering.

Spanish banking group Santander is partnering with US digital advisor SigFig to launch into the so-called "robo" advisory space with exchange-traded funds.

The move by the Spanish bank’s broker-dealer division, Santander Securities, sees the set up of the Santander Pathfinder service tool. This will be operated and managed by SigFig's wealth management arm, as per a regulatory document filed by Santander Securities last month and according to financial media reports last week.

SigFig will create the model portfolios which will be composed of ETFs. The client portfolios will be recommended by an algorithm based on risk tolerance questionnaires filled out by clients. The specific ETFs were not specified.

The move by the Spanish bank reflects the continuing inflow of money into ETFs, which has been strong for more than decades and continues unabated. It is tapping into the global robo-advisor market, in which the digital channels of wealth management use AI to help craft asset allocation. It may also prove a good move, with the sector billed to reach $6.2 trillion in 2027.

The ETF funds will be managed on a discretionary basis aligned with client risk and objectives, and will range from conservative to aggressive. Clients. who will have at least $2,000 to invest, according to the Santander Securities document, will be charged an annual asset-based fee of 0.50 per cent for the robo-advice service, with a separate charge for their investments. The company offers its clients a sweep option on its advisory platform, the Fidelity Government Market Fund, for which no charge is made.

As well as creating the portfolios, SigFig will also implement and manage the model portfolios, as well as monitoring and rebalancing portfolios. It will also oversee the operation of the algorithms employed.

If a client chooses to use the programme’s tax-loss harvesting feature, SigFig will employ algorithms to analyse potential tax-loss harvesting opportunities. 

The service will be accessible via a mobile app and online and will not offer access to human advisors, however a customer service desk of licensed advisors will handle user queries. Santander will pay SigFig an undisclosed portion of the charge.

Founded in 2012, investment manager SigFig has assets under management of $1.42 billion, as at 30 September, and it has 27,000 individual clients (Forbes). It uses a combination of investment research and technology to build investment portfolios aligned with client goals, offering financial advisors to all customers. SigFig bought UBS' Smartwealth platform  in 2018.

Santander Securities, the entity that plans to launch PathFinder, is a subsidiary of Santander Holdings USA, which is a holding company for Santander Bank. As of 31 December 2020, Santander Securities had approximately $1.7 billion in client assets under management.

ETF bonanza
Exchange traded funds and products held $9.1 trillion at the end of May 2021, driven by year-to-date net inflows of $559.48 billion. That inflow beat the prior record of $229.34 billion gathered at this point last year, according to ETFGI, a firm monitoring these index-tracking entities. ETFs are typically open-ended, index-based funds, with active ETFs accounting for 1.1 per cent of the market share. ETPs, on the other hand, are similar to ETFs in the way that they trade and settle, but do not use an open-end fund structure. 

WealthBriefing approached Santander and SigFig for comment and may update this article in due course.