Combined Human and Robo Advisers Show Promise

A report from Charles Schwab finds working-age Americans are warming to financial advice that is delivered through a combination of personal interaction and technology tools.

Fully nine out of 10 Americans view technology as “more of a life necessity than a distraction,” Charles Schwab finds in a new survey report, “Man and Machines,” and this thinking applies directly to financial advice and the challenging process of planning for a successful retirement.

Schwab identifies increasing trust and passion for technology across generations in the United States, especially when it comes to dealing with daily financial tasks and managing money for the long term. While the data set focused on several thousand affluent consumers, the findings are telling for the wider investment advice marketplace—in part because affluent investors are often cited as favoring personal adviser relationships over technology.

In the sample of affluent investors, just over half (54%) said they prefer to rely on technology for problem solving, including for financial issues and plan-making, while 46% still favor interactions with professionals or people they know or to whom they are referred. Notably, the report finds age “is not a defining factor in how people approach the use of technology.”

While the majority want technology to play a role in financial and general decisionmaking, when asked to choose between relying on only a financial adviser or only a computer algorithm for managing their portfolios, two-thirds (66%) of all respondents say they still prefer the human touch. Generation X is just as likely as Millennials to prefer a portfolio based on a computer algorithm, at 40% each, versus only 30% of Baby Boomers and 24% of the Silent Generation. (See “Finding a Middle Ground in Robo-Adviser Debate.”)

Charles Schwab’s study also found that Gen Xers appear to be even more plugged in than Millennials when it comes to investing and portfolio management. Gen X is more likely to rely on technology when trading stock and when creating or maintaining a financial plan, for example, while Millennials appear to be seeking alternatives to technology. Millennials are more likely than any other generation to “feel relief from leaving their devices at home when vacationing,” and they are more likely to turn toward familiar sources, such as their parents, instead of seeking answers online for financial matters.

“We’ve come to accept as fact that Millennials are hyper-focused on using technology and the Internet for all their needs, but it’s clearly more complicated than that,” says Naureen Hassan, Charles Schwab executive vice president and head of the Schwab Intelligent Portfolios, an automated investment advisory service launched this year by the firm.

Hassan noted that, similar to other studies, Charles Schwab’s new research indicates that Millennials are far more likely than the older generations to put money that isn’t immediately needed into a savings account (38%). This figure is only 13% for the Silent Generation, 21% for Boomers and 28% for Generation X. Hassan says Charles Schwab, like other investment services providers, is working to “find a way to get this generation started on the path to investing, and that will require more than a pure technology-based approach.”

Up Next: Common Ground Between Millennials and Gen X

The study also found that Millennials and Gen Xers “are more similar than commonly accepted,” and larger divisions are found between the two younger generations and their older counterparts, particularly when it comes to personal service. Some findings to back up the point include:  

  • Millennials and Gen Xers are less willing to pay more for personalized investment services (44% and 47%, respectively) than Boomers and Gen X (55% and 56%);
  • Millennials and Gen Xers are less likely to want to discuss investing strategies with a professional (49% and 48%) compared with Boomers and the Silent Generation (61% and 67%); and
  • Millennials and Gen Xers are more likely to prefer to automate investing decisions (51% and 52%) compared to Boomers and the Silent Generation (39% and 33%).

Revealing a general acceptance and trust in technology when it comes to money, Charles Schwab’s study finds that a strong majority of investors across all generations and asset levels “trust that their money is safe when they manage accounts online.” But there are clear signs that trust in online interactions can vary depending on the nature of the interaction, the report continues. Although technology is the preferred mode for transactions like booking a flight (96%), getting directions (95%), researching a new car (91%) and planning a vacation (90%), some respondents feel differently when it comes to more private matters. Across the generations, the vast majority say they prefer to interact in person when dealing with a health issue (80%) or finding a date (68%), for example.

When it comes to investing, the human touch still appears to be crucial in certain situations, especially for the ultra-high net worth category—those with $1 million or more in investable assets—and Millennials. Findings that illustrate a preference for personal interaction when it comes to investing include:

  • Seventy-five percent of Millennials are more interested in talking with a professional adviser when their financial situation gets more complicated, compared with 72% of Gen Xers, 71% of Boomers and 64% of the Silent Generation;
  • Sixty-four percent of Millennials are more interested in talking with a professional adviser when they have a significant life event like getting married, having a child or dealing with a death in the family, compared with 60% of Gen Xers, 60% of Boomers and 53% of the Silent Generation; and
  • Those with ultra-high net worth are least likely to prefer automated investing (39%) or a portfolio based on a computer algorithm (28%).

Hassan adds that Charles Schwab has reached the conclusion that “there isn’t a ‘one size fits all’ answer for how people want to invest or manage their money—they will likely always want a range of services that incorporate both technology and a human touch.”