A new report published by Cerulli Associates examines the growth trajectory of the digital financial advice market that has occurred since 2015, finding there remains a clear inverse relationship between an investor’s age and their willingness to engage with purely digital financial advice platforms.
Scott Smith, director at Cerulli, notes that as of the third quarter of 2017, there is “greater openness to digital advice relationships, but a strongly negative correlation between age and interest remains.”
“Investors ages 30 to 39 exhibited the greatest enthusiasm about robo-advisers, with interest steadily declining among those ages 70 and older,” Smith explains. “When examining investors’ inclination to use these platforms from a wealth perspective, a slightly more nuanced result appears. While interest in lower wealth tiers was more muted, investors with more than $2 million of investable assets express substantial increases in their willingness to engage with digital providers.”
As one would expect, Cerulli has seen that higher-net-worth investors are more aggressive in adding to their total number of advisory relationships, including digital, as a form of provider diversification.
“When age and wealth cohorts are combined, fewer but potentially more profitable segments emerge,” Smith adds. “For example, more than one-quarter of investors over 70, with $2 million to $5 million in investable assets, would consider online only engagement. This tells us that instead of solely considering the emerging investor market, providers should consider incorporating digital platform features that address the concerns of those approaching, or in, retirement.”
Smith says the research further indicates that investors with a professed interest in online only engagement will often seek the advice of a traditional human adviser to round out their guidance needs. “There is an opportunity for advisers to maximize their addressable market and investor satisfaction by developing platforms that can seamlessly move between digital and human advice,” Smith says.
The report goes on to suggest that, when considering the design and layout of their online platforms, financial advice providers must be “particularly cognizant of both the overall preferences of their potential clients and, more specifically, the user experiences that each subset of investors is likely to encounter through its chosen engagement options.”
Within both the online enthusiast and traditional advice client groups, Cerulli finds evidence of a clear desire for an adviser to provide transparency in interactions. This is the most important satisfaction factor cited by 72% of traditionalists and 54% of online enthusiasts.
“This issue presents something of a conundrum for many providers,” Cerulli notes. “While low fees have been a focal point of many digital platforms, most investors lack a clear understanding of both the variety and amount of fees they may be subject to within an advisory relationship. Instead of digging through a variety of disclosures, clients of traditional advisers are far more likely to rely on their advisers, whom they believe must put clients’ interests ahead of their own, to make judicious investment decisions.”
As Cerulli researchers lay out, this scenario “can severely undermine the marketing efforts of digital platforms seeking disgruntled investors, only to find a majority content with their current arrangements.” To address this concern, Cerulli finds traditional providers are adding “thorough online disclosure portals.”
“For their clients, knowing the information is easily available is likely to be more important than reviewing it in depth,” the research concludes.
These findings are taken from the first quarter 2018 issue of The Cerulli Edge – U.S. Retail Investor Edition. More information on obtaining Cerulli reports is available here.