Cultural observers who worry that artificial intelligence will someday completely replace human thought should look closely at the field of financial and investment advice.
Online financial advisory companies which offer financial and investment services through computer-derived algorithms with no human interaction compete today with human financial advisors for clients. While the advent of Robo-advisors 10 years ago was aimed initially to handle the beginning phases of investment services for tech-savvy and tech-trusting young investors, they have now extended their service capabilities to include significant financial planning tasks as well.
These Robo-advisors are also no longer dependent solely on Millennial clients. Investors of all ages are taking advantage of the low-cost, low-hassle form of investment advice.
But the difficulty for anyone marketing Robo-advisor services to investors is to convince new customers that Robo-advisors can perform investment tasks and prepare financial planning services as well as a human advisor.
At the same time, human advisors must prove that they can provide greater services to clients than a Robo-advisor, which can handle preliminary investment tasks at a lower cost to the customer with a minimum of interaction and time required.
Spectrem’s latest study on Robo-advisors looked closely at the comparisons investors make between Robo-advisors and human advisors, and finds that the two types of investment advisory services are closer than ever in terms of perceived performance.
“This is not a cautionary tale; it is the future of the financial and investment advice industry,’’ said Spectrem president George H. Walper Jr. “Financial providers must determine how to offer both digital and human services, make both choices viable and attractive to investors, and clearly delineate the differences in services provided and costs incurred.”
Robo-Advisors 3.0 surveyed only those investors who use Robo-advisor services, asking them to compare Robo-advisors to human advisors in terms of six difference types of services or investment results – return on investment, picking investments to meet financial goals, picking investments to meet risk tolerance, selecting investments for a retirement plan, adjusting investments for life changes, and establishing a financial plan.
All of those tasks are standard fare for a relationship between an investor and a human advisor. They are also tasks or performances which can be applied to a relationship between an investors and a Robo-advisor.
Investors were given three answer choices for each topic: a human does a better job, a Robo-advisor does a better job, or there is no difference in the performance of a human or Robo-advisor.
Investors had definite opinions. For each question, only approximately 20 percent said there was no difference between the two options, which still has to be considered a loss for human advisors.
But in terms of picking investments to best meet risk tolerance habits of an investor, 41 percent of investors said the Robo-advisor did a better job, and only 39 percent said a human advisor could do a better job. From a perception standpoint, Robo-advisors won that battle.
The area in which human advisors “won’’ the debate as in terms of establishing a financial plan, with 59 percent of investors giving the nod to the human, only 23 percent to the Robo-advisor and 18 percent saying there was no difference. Establishing a financial plan requires an advisor to take into consideration a number of different influences, and that is a task investors may believe humans have a better job comprehending in terms of the convergence of economic factors to consider.
Top Takeaways for Advisors
Are these investors correct in thinking a Robo-advisor CAN do these tasks as well as a human? Where the answer is “yes", providers need to promote that idea if they want to acquire new clientele to their own Robo-service. Where the answer is “no", providers need to promote the details that make a human advisor better equipped to handle the task.
Providers who offer a Robo-service as well as a human advisor need to consider the balance of services offered by both types of advisor and carefully market the services in a way that maximizes the client experience and performance in order to attract other investors who can benefit from both kinds of advisor.
©2019 Spectrem Group