Automated portfolio management platforms, or robo-advisers, are rapidly winning a sizable share of traditional advisory clients, from high-net worth retail investors to defined contribution retirement plans.
Their presence in the marketplace has reached the point where traditional financial advisory firms can no longer just brush them off, according to Hearts & Wallets research. Traditional firms should instead focus on learning from the successes and failures of early robo-adviser entrants, a new white paper from the firm argues, looking for opportunities to take the best of both approaches.
The Hearts & Wallets white paper looks at a number of recent developments in the robo-space to make the case. Recently, Fidelity GO was released, offering a mix of algorithm-based investment advice and insight from human advisers. Another hybrid service examined is Vanguard’s Personal Advisor Services. Since launching in May 2015, it has accumulated more than $45 billion in assets to become one of the leading players in the robo-adviser space. The biggest independent robo-adviser is Betterment with $4.8 billion in assets—an increase of 300% from its levels at the start of 2015.
According to Hello Wallet, consensus is building that consumers prefer these services because they offer user-friendly and personalized platforms to manage and track assets, as well as transparent fees. Not surprisingly, robo-advisers are attracting tech-savvy millennial investors who value responsive design, Hearts & Wallets finds. Citing 2015 focus groups conducted by the firm, Hearts & Wallets quotes one investor who said he liked, for instance, that “Betterment showed you a preview of what the interface looks like that you’d actually be dealing with.”
Another said, “I like Personal Capital’s dashboard tool a lot. I think it’s just a really nice, clean, interface, and it also tracks your net worth, just like Mint, which is, for me, the most useful thing right now.”
Aggregating and monitoring cash flows is an emerging client need that robo-advisers have been excelling at meeting, according to a Hearts & Wallets’ “News Needs Framework” report. Fifty-one percent of respondents said they needed help in this area.
NEXT: Where robos are excelling
Hearts & Wallets found that another point of recent success for robo-advisers is their willingness to start a client relationship without necessarily first gaining any real wallet share: “Rather than requiring large starting account balances and reams of paperwork, robo-advisers begin with small tasks such as signing up for free emails, setting up an un-funded account or paying a flat fee. Furthermore, a clear value proposition and highly-tailored investment strategies have also shifted more investors toward these new entrants.”
One respondent told Hearts & Wallets, “I got a more homey vibe from [Personal Capital] ... I’m assuming they’re going to ask me a ton of questions about myself before telling me to put all my money somewhere.” Another respondent said he valued transparency when it came to fees by WealthFront. “I knew what I was getting myself into.”
Contrary to what traditional advisers might assume, the research also shows that digital tools are “resonating most with investors who have at least $100,000 in investible assets.” According to Hearts & Wallets, more than half of retail investors with assets of $100,000 to $2 million cite strong interest in online tools, websites and Web applications as sources for information and advice.
Related to all of this is the wider trend in all forms of retail and services, whether financial advice or anything else, for more responsive user-control. According to a quantitative analysis by Hearts & Wallets, more than 70% of respondents said they want to “make decisions and manage money on my own,” whatever form of advice they prefer. Most investors, the research found, use technology and live advice together with frequencies varying depending on the segment of investor.
Providing support via multiple channels—i.e., automated portfolio management complemented by access to an individual adviser or call center—can be particularly useful, considering 62% of respondents said they need interpersonal motivation to take actions such as saving and investing more. The research shows the desire for help with determining financial actions is fairly even across wealth and age segments.
“This provides advisers with an opportunity to offer more useful and actionable sources of information via their digital-advising products,” the research concludes.
Additional information and research are available at www.heartsandwallets.com.