There is a small yet growing population of investors who use the technology-based, algorithm-sourced financial advisor platform known as robo-advisors.
However, the majority of investors still either shy away from robos or don’t even consider them as viable substitutes for human interaction with personal advisors.
Robo-advisors have entered the mainstream of financial and investment advice. Numerous large financial providers, who might have initially considered robo-advisors to be the antithesis of their company’s services, have now created technology platforms for investors who want to go the robo-advisor route, at least initially.
(The thinking is that an investor with an account with a robo-advisor can, in time, be persuaded to use a human advisor when their investments get larger and more complicated).
Spectrem Group, which has researched robo-advisors since their inception, has published a new study – Wealthy Investors and Their Perceptions of Robo-Advisors - that provides insight into two groups of investors, those who use a robo-advisor and those who do not. Those investors who do not yet use robo-advisors have a clear sense as to why they don’t want to go the automated route, and also have a specific idea of what might make them change their mind.
“Robo-advisors remain a new idea in the industry, even though they have existed in some form for several years now,’’ said Spectrem president George H. Walper Jr. “Most investors have at least heard of robo-advisors and most also have an opinion about their worth as a financial advisor. The study explains what keeps investors from using robo-advisors as well as explains what might make them change their minds.”
Advisors and financial providers who want to take advantage of the limitations of robo-advisors will note the reasons investors give for not using robos.
Among investors who do not use robo-advisors, 49 percent said they do not use robo-advisors because they like personalized services and the automated services do not feel personal. Almost 30 percent said they prefer to meet their advisor in person.
There are also those investors who don’t trust automation and technology. Twenty-three percent say they don’t want to share personal information with an online advisor and 23 percent have a limited knowledge and understanding of robo-advisors.
Another 21 percent don’t feel someone can understand their needs if they do not have a face-to-face meeting.
Advisors should highlight their availability for personal meetings and their willingness to take their time in personal meetings to enhance their advantages over robo-advisors.
However, those investors who do not use robo-advisors were willing to admit their might be conditions that would cause them to turn to robo-advisors.
For instance, 30 percent of investors not currently using robo-advisors said they would switch if they received information that robo-advisors can provide higher returns on investment. Sixteen percent said they would use a robo-advisor if their human advisor suggested it might work for them, and 13 percent said a referral from a friend or family member would encourage them to move assets into a robo account.
Smaller percentages of investors said that performance problems related to their advisor, such as retirement, a personality conflict or a heavy-handed push to invest in certain products, would push them toward a robo-advisor.
Top Takeaways for Advisors
Human advisors do still have advantages over automated services, and those advantages have to do with the value of human contact and conversation. The advance of robo-advisors is going to force personal advisors to become more personal and personable. Advisors and financial providers must constantly remind themselves that investors will use human advisors only if that relationship goes beyond the crunching of numbers that robo-advisors use to create investment suggestions.
There is still a sizable population of investors who do not trust automation, but that audience shrinks daily. However, there are also investors who have used robo-services and have not been satisfied. Providers and advisors must promote the differences that exist and take advantage of the peculiarities of robo-advisors that might drive clients away.
*According to Spectrem research, there are currently 29.8 million households with $100,000 - $1 million in net worth (not including primary residence, NIPR). There are 9.1 Millionaire households ($1 million - $5 million net worth, NIPR), 1.21 million Ultra High Net Worth households ($5 million - $25 million net worth, NIPR) and 145,000 households with more than $25 million in net worth, NIPR.
©2016 Spectrem Group