Report Compares Robo-Adviser Brands

Hearts & Wallets report highlights salient features and user opinions of emerging “robo-adviser” brands.

A new Hearts & Wallets study “assesses the robo phenomenon through the prism of trend-setting Millennials,” comparing robo-adviser brands as perceived by investors ages 21 to 39.

According to Hearts & Wallets, this market segment represents 34.2 million households making decisions about $2.1 trillion of investable assets. Even more important than Millennials’ current asset total is their potential for substantial future earnings and wealth inheritance—and their trendsetting attitudes on technology and customer experience.

“Although small in comparison to total U.S. investable assets of about $41 trillion, younger consumer preferences will have an outsized impact on financial services as firms race to respond to new trends,” the study finds. Given their willingness to use technology and digital media across new aspects of life, Millennials are pushing financial services firms to reassess long-standing assumptions about the way people want to manage and think about money.

Hearts & Wallets’ assessment finds a small number of emerging firms are competing aggressively for robo-adviser market share—notably Wealthfront, Betterment, Personal Capital and LearnVest. They face strong and well-supported competition from bigger name firms such as Vanguard, Charles Schwab and TD Ameritrade, which have all taken steps towards open architecture access to robo-adviser platforms for their adviser forces.

Looking across the marketplace, Hearts & Wallets finds the emerging firms are generally not positioning themselves as a full replacement or direct adversary for traditional advisers—especially not in the older client segments. Instead, a more genial relationship is taking shape in which the emerging robo firms function more as a supporting product or platform that allows clients with the prerogative to access more self-service and direct access to tools and investments.

This is the case with LearnVest, for example, which was recently acquired by Northwestern Mutual. Analyzing that deal, Hearts & Wallets feels the LearnVest platform, rather than being positioned as a replacement for Northwestern Mutual’s traditional advisory staff, is being positioned as a new type of “motivational financial planning platform, seen by young consumers as an entirely new category of support.”

Another key theme emerging from Hearts & Wallets’ analysis shows Millennials are “accustomed to overwhelming choice in the information age,” leading to increased importance of “brand personality” as a tool in selecting a firm that matches their own tastes and expectations. The study found a process of elimination helps consumers “winnow their options to a select set of the best personality fits.”

“Younger consumers have been weaned on complexity,” the study suggests, “and they are excellent comparison shoppers. It’s more fun to figure out if I’m the kind of person who uses Wealthfront than to sort through 7,000 mutual funds. Staying neutral seems safe but may not be an effective defense for bigger firms. Neutral is boring, while a true personality fit delights the consumer.”

For both robo-advisers and traditional firms, Hearts & Wallets finds clarity of pricing and a clear definition of the scope of service are high on Millennials’ lists of demands. “Younger consumers love that the robo-advisers tell them what they are getting and answer the three screaming unmet needs first identified by Hearts & Wallets in 2010: Tell me what you do, tell me how you earn money, and tell me how to evaluate you.”

The study also examines how consumers respond to the robo-advisers’ use of games and behavioral finance themes to personalize products in meaningful ways.

“The new entrants use design as a competitive weapon,” the report notes. “App-like features draw the consumer in. To compete, traditional firms need to recognize younger consumers are connoisseurs of interface and design, and build their offerings accordingly.”

These findings are drawn from the study “New Needs, New Competitors, New Solutions: Young Investors Speak, Revealing the Real Reasons for the Robos ‘Emergence’ and What to Do Next,” which analyzed a large sample of young investors with more than $10,000 in investable assets. About half the respondents currently participate in a workplace retirement plan.

Additional information from study can be found at