The interest in robo-advisors is growing, with the strongest interest coming from the young and the not-yet-Millionaires.
But the interest in automated financial advisors is not just for the young. The interest is growing among all age groups and wealth segments.
So says the results from our study Asset Allocation, Portfolios and Primary Providers, which looks at how wealthy investors allocate out their investable assets. The study looks at investors from three different wealth segments, starting with the Mass Affluent investor, those with $100,000 in net worth (Not Including Primary Residence), and up to the Ultra High Net Worth investors, who have net worth up to $25 million.
It is the young Mass Affluent investors most invested in robo-advisors. While almost half of Mass Affluent investors have managed account programs, 9 percent have accounts managed by robo-advisors, and that includes 23 percent of Mass Affluent investors under the age of 36. Fourteen percent of Mass Affluent investors between the ages of 36 and 44 have accounts with robo-advisors.
Millionaires, those investors with a net worth between $1 million and $5 million, are almost as invested in robo-advisors as Mass Affluent investors are. Nine percent of Millionaires have accounts managed by robo-advisors (the same percentage as Mass Affluent investors) although more Millionaires have managed account programs (53 percent) headed by human advisors.
Broken down by age, almost 28 percent of Millionaires under the age of 55 have accounts managed by robo-advisors. That includes 16 percent of Millionaires between the ages of 45-54.
Overall, the UHNW investors are slightly less enthusiastic, with 8 percent having a robo-advisor relationship ongoing. Even among young investors from that wealth segment, however, interest in robo-advisors is high: 45 percent of UHNW investors under the age of 48 have robo-advisor accounts.
Although many of these investors do not know what their robo-advisor managed accounts hold, those that do are most invested in equities. Thirty-eight percent of assets held by robo-advisors for UHNW investors is in equities, with 19 percent in fixed income.
For investors who are willing to work with robo-advisors, there is not much of a limit on what those automated advisors can do. Our 2015 study Advisor Relationships and Changing Advice Requirements showed that approximately 25 percent of UHNW investors believe robo-advisors can do most jobs asked of human advisors, including 34 percent who thought a robo-advisor could match a human advisor’s performance in selecting investments for a retirement plan.
That data did show that few investors believe robo-advisors are better equipped to handle investment assignments, but if investors believe a robo-advisor is equally adept at an investment task, and the robo-advisor costs less, it is understandable why an investors might choose to work with a robo-advisor.
It is up to advisors and financial providers to explain and illustrate how working with human advisors is more profitable than working with robo-advisors.