The growth of robo-advisor services has escalated to the point that most major financial providers have created their own service just to keep clients in-house.
Robo-advisors, which use algorithms based on investor profiles to provide investment advice, are usually less expensive than talking to a human advisor. There is less give-and-take, less opportunity for argument or coercion, and robo-advisors are always available. There are some services, especially related to balance updates, which robo-advisors offer beyond what human advisors can offer.
But the question remains whether robo-advisor users are more satisfied with their electronic advisor than they are with their human advisor.
The answer to that question is in Spectrem’s new research on robo-advisors. According to Wealthy Investors and Their Perceptions of Robo-Advisors, there is not a huge difference between the satisfaction investors feel for their human advisor or their robo-advisor.
“The research shows that investors now believe robo-advisors can perform many advisory functions as well as a human advisor,’’ Spectrem president George H. Walper Jr. “That would seem to indicate that they are just as satisfied with their robo-advisor’s performance as they are their human advisor’s performance.”
The study asked affluent investors who use both human and robo-advisors to rate their satisfaction with their two different types of advisors on a 0-to-100 scale. On the scale, rating toward the “0” meant satisfaction was greater for a human advisor and rating toward the “100’’ meant satisfaction was greater for the robo-advisor. The investors were also segmented by age, gender, wealth level and investment knowledge.
Among all the investors, the rating was about as close to down the middle as it could be, 52.90, showing a slight lean toward higher satisfaction for robo-advisors.
There were segments of investors who leaned much more heavily toward robo-advisor satisfaction. For instance, investors under the age of 35 (a top audience for robo-advisors) was at 64.00. Investors who admit to a low level of investment knowledge put their robo-advisor satisfaction at 58.37.
This information is significant to advisors. It indicates that they are not servicing young investors the way they want to be serviced. The ease of use of a robo-advisor, not to mention the lower fees, is an appeal human advisors are finding it hard to match.
The insights related to investor knowledge is an indication that investors with low levels of investment background may not fully understand how a human advisor can better serve their investment intentions.
Both male and female investors showed a slight preference for their robo-advisor, with females leaning slightly more toward robo-advisors.
There were investors who leaned toward a preference for human advisors, but not by a large margin. Predictably, older investors placed their overall rating at 43.54, a slight lean toward humans. Likewise, investors who considered themselves very knowledgeable about investments and finances rated their satisfaction at 49.48, slightly on the human side of the rating scale.
Top Takeaways for Advisors
The overriding detail of the Spectrem research is that investors do not see any difference between the services they receive from a robo-advisor or the services they receive from a human advisor. There needs to be some way for companies to indicate the reasons investors should prefer to work with a personal advisor. Then, of course, those advisors have to deliver the goods.
Satisfaction is a product of expectations. Investors may have a lower level of expectation for robo-advisors, which could create an easier path to satisfaction. However, investors working with robo-advisors may reach a level where they eschew more complicated investment options which would require working with a human advisor simply because the robo-advisor service works so well for them. Again, personal advisors need to differentiate themselves from the non-human investment experience.
*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.
©2017 Spectrem Group