What Millionaires Think of Human Vs. Robo-Advisors
Many investors believe that the level of advice and services offered by robo-advisors is on par with traditional or human advisors, according to research by Spectrem Group.
While 69% of millionaire investors (those with a net worth between $1 million and $5 million) believe a human advisor would be the better choice to create a financial plan, 24% think a robo-advisor could do the job just as well. And 7% believe a robo-advisor could do a better job, according to findings in the report, Advisor Relationships and Changing Advice Requirements.
“The role of technology in the world of financial advice has reached a critical stage,’’ Spectrem president George H. Walper Jr. said in a statement. “It is revealing to see how investors perceive the ability of so-called robo-advisors to provide the same level of advice human advisors can. If there is an argument to be made for human advisors, it needs to be clearly stated.” (For more, see: A Shakeup Is Coming for the Advisory Industry.)
Spectrem points out that retirement planning is a big part of financial advice and investors can spend hours considering their options regarding the investments they choose to provide retirement income down the line. But 30% of millionaire investors think a robo-advisor could provide that information just as well as a human advisor and 16% think a robo-advisor would do a better job of selecting sources of retirement income. Only 54% of millionaires, meanwhile, believe a human advisor would be better at selecting investments related to a retirement plan.
Investors will often change advisors if they do not believe the advisor correctly understands their level of risk tolerance, Spectrem’s research found. But 28% of millionaire investors believe a robo-advisor could pick stocks to meet their own risk tolerance just as well as a human advisor and another 16% believe a robo-advisor could do so better than a human advisor.
Ultra High Net Worth Investors
Ultra high net worth investors (those with a net worth between $5 million and $25 million) are less likely to prefer robo-advisors over human advisors in the above examples. But there are still large numbers of these investors who perceive robo-advisors as a viable and clearly less expensive option. Thirty-four percent of ultra high net worth investors, for example, believe a robo-advisor could advise them on selecting investments for a retirement plan just as well as a human advisor could. (For related reading, see: Why the Wealthy Will Always Need Human Advisors.)
Advice for Advisors
Spectrem suggests the following for advisors who are battling the perception that the advice robo-advisors offer is on par with what they provide. Some financial advisory firms have their own robo-advisor platform, and working with the firm's human advisors is the next step for investors who are ready to move on to a more complicated and labor-intensive investment plan. Advisors who work at these firms must be prepared to show investors that there are advantages to human interaction. Those advantages need to be tangible, producing superior results and a higher return on investment.
Advisors who work for a firm that is battling the concept of automated advice need to provide immediate proof of value. To do so, expertise on specific investment products and services, as well as an ability to communicate the advantages of each product will prove a human advisor’s worth beyond that of a robo-advisor. And advisors would do well to demonstrate the other services their automated competitors can't offer so readily, like detailed financial plans that incorporate insurance, estate planning, healthcare expenses and educational savings plans.
The Bottom Line
Many financial advisors find themselves battling the perception that robo-advisors can offer the same quality of advice and services. “Advisors and financial providers must prepare themselves to show how they provide higher quality and more in-depth advice than robo-advisors if they want to hold on to clients or attract new ones,’’ Walper said. “Deeper understanding of a potential client’s investing habits, concerns and attitudes would go a long way toward allowing an advisor to be more responsive to a client’s needs than a robo-advisor.”
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