Gone are the days when an investor could answer a few questions online with no follow-up advice, according to the latest issue of The Cerulli Edge. To survive, digital advisers, or robo advisers, need to incorporate advice from a live adviser. This hybrid formula works well with middle-market advisers with $100,000 to $500,000 of investable assets, according to Cerulli.
Cerulli recommends that digital advisers still use an online profiling tool for investors that will place them into an asset allocation model. The tool should also aggregate information about all of the investor’s holdings. The adviser can then present the algorithm’s recommendations by telephone or Web-ex and speak with the investor about his or her goals. Then, every year, the adviser touches base with the investor to find out if there have been any major life changes or new goals.
“During the past six months, managed account offerings that combine digital advice with access to a human adviser have emerged as digital advice’s second act,” Cerulli says. “Digital advisers are starting to better understand the needs of investors of different ages by offering hybrid models that bring together the best of financial advisers and automated investing.”
While 70.8% of households in the U.S. have investable assets of less than $100,000, the next tier is the middle market, with $100,000 to $500,000 of investable assets, with $234,855 as the average. Cerulli says this is the sweet spot for the hybrid model. The reason for this is because middle-market investors tend to focus on only a handful of financial goals, such as planning for retirement, saving for a child’s education, building a nest egg, and, once they retire, turning their holdings into income, according to Cerulli.