The operational theory that only young investors are going to use technology-based platforms for asset management and financial product purchases is wrong.
Older investors are not only using so-called robo-advisors, they are using them in place of financial advisors as their primary advisor. In some cases, older investors are jumping into robo-advisor services without any contact or relationship with human advisors.
The advent of technology-based financial advisor services seemed perfectly suited for younger investors with a skill level and comfort level using automated services on the internet. Robo-advisors provide suggestions to user investors based on algorithms that take into consideration financial information provided by the investor. Robo-advisors are impersonal, direct, easy to use when the investor choices are simple, and less expensive than human advisors.
The spread of robo-advisor services has caused many financial providers to offer limited robo-services to their investors as a companion to their human advisor services.
As expected, younger investors are more likely to use robo-advisors, and many use them as their advisor for their first foray into the investment business. But a new Spectrem study shows that older investors are signing up for robo-advisor services as well.
“Technology-based investing is not going to go away; it’s the wave of the future, at least to some extent,’’ said Spectrem president George H. Walper Jr. “Advisors can exist alongside robo services, by promoting the differences that exist while also conceding some assets to their own technology-based platforms.”
According to Wealthy Investors and Their Perceptions of Robo-Advisors, the average age of investors who use robo-advisors is 48, but among those investors, 20 percent are over the age of 62. The average age of investors who do not use a robo-advisor is 62, and 58 percent of those investors is over the age of 61.
The indication of that research is that older people are using robo-advisors, just not as many as younger investors. Keep in mind that older investors did not have robo-advisors as an option when they got started with investing and may not understand robo-advisors or may fear the technological involvement in their money matters.
Robo-advisors are certainly no longer a novelty service. According to the study, 13 percent of all investors who use a robo-advisor use that service as their primary advisor. That includes 16 percent of investors over the age of 62, the highest percentage based on age segment.
Older investors are becoming interested in robo-advisors and are finding that kind of service preferable in some cases. Advisors working for firms that offer a technology-based service should discuss the topic with investors of all ages who have not yet availed themselves of the service because investors do talk amongst themselves. Investors who find out robo-advisors are quite often perceived as less expensive and fully capable of providing the same level of service as financial advisors may decide these types of services are an attractive option, and providers want to have that technology available to maintain the investor relationship.
The research goes one step further, and this is a step that advisors and providers must take to heart. Of the investors who say a robo-advisor is their primary advisor, 56 percent said they had no primary advisor prior to using the robo-advisor, and that includes 64 percent of those investors over the age of 62 who consider their robo-advisor as their primary advisor.
That means that there are older citizens who are looking for a primary advisor and are signing up with robo-services rather than contacting a human advisor.
The percentage of robo-advisor users who did not have a primary advisor prior to signing up for robo-services is high at all age groups: 65 percent of those investors between the ages of 36-51, 50 percent of those ages 52-61 and 33 percent of those under the age of 35.
Top Takeaways for Advisors
Pre-conceived notions are simply no longer reasonable for advisors. The idea that older investors will not acclimate to technology-based services is outdated; Baby Boomers may not have been born with computer mouses in their hands, but they had to develop skills to exist in the businesses world the past 20 years. They are just as likely to consider robo-advisors as younger investors are.
Embrace the change in the industry rather than fight it. Robo-advisors have become mainstream, to the point that many, if not all, major financial providers have added a technology-based platform to their services list. With that, human advisors must find a way to work within a system that includes technology to determine how they can provide services and information that go beyond what robo-advisors offer.
Is it possible the outbreak of technology-based financial advice services has created a boom market of investors who are looking for financial advice and do not want to get involved with human advisors? If so, human advisors need to determine ways to attract those investors to move some of their assets into the programs and services in which human advisors can perform better than robos can.
*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.
©2016 Spectrem Group