When it comes to picking robo-advisors, most affluent investors flock to familiar, brand-name financial firms that are well-known for handling retirement accounts and other types of accounts for tens of millions of Americans. And you can use the reasons why they do that to help build your own financial advisory practice.
Fidelity Investments, Vanguard and Charles Schwab provide robo-advisory services to more than half — 56%, to be precise — of all affluent investors who use robo-advisors, according to a new survey by consulting and research firm Spectrem Group.
The Fidelity Go service is the choice of 27% of the affluent users of robo advisors. Another 16% use Vanguard Personal Advisor Services. And 13% use Schwab Intelligent Portfolios.
Other robo-advisory services hold only single-digit shares of their affluent clients. For instance, 8% of the investors use AssetBuilder.
Why are the Fidelity, Vanguard and Schwab offerings the most popular robo-advisory services? "A lot of the reason has to do with their entire brands," said Randy Wostratzky, a director of Spectrem. "It's not just from their visibility as a robo-advisor, but a lot of it has to do with the key roles they play in the 401(k), 403(b), 529 and IRA space."
Also, those firms survived the 2007-08 financial crisis without damage to their reputations, Wostratzky says. "Unlike banks that were associated with the housing crisis and financial institutions involved with (subprime) predatory loans, nothing happened to those three firms to make them less trustworthy to most investors," Wostratzky said.
The survey results offer guidance for human financial advisors, Wostratzky says.
"There's a reason clients use human as well as robo-advisors," he said. "Humans can do some things better than robos, like putting together investment plans and adjusting plans (in response to) life events."
Many firms offer robo-advisor platforms to clients who are young and have not accumulated a lot of assets. "Human advisors at those firms need to stress to those young clients that as their assets accumulate and their financial blueprint becomes more complex, they can offer other services that robos are not truly able to offer."
Part of the appeal of Fidelity, Vanguard and Schwab is that they also offer advice from human advisors, Wostratzky says. "Some things are still better done by humans than by robos," he said.
The investors Spectrem surveyed had at least $100,000 in net worth not including their primary residence.
The surveyed also found that affluent robo-advisor clients overwhelmingly tend to be confident in their own investment knowledge. A whopping 90% of affluent clients see themselves as fairly or very knowledgeable about investments.
Just 9% consider themselves not very knowledgeable, and only 1% say they are not knowledgeable at all.
Those using robo-advisors also tend to be younger than nonusers. The average age of wealthy robo-advisory clients is 48 vs. 61 for nonusers.
And wealthy robo-advisor clients do not put all of their eggs in any one basket. They allocate 37% of their assets to a robo-advisor, on average. They assign another 28% to a human financial advisor. And they control the remaining 35% by themselves.
In fact, only 13% of robo-advisor clients treat the robo as their primary advisor.
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