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US survey shows hybrid betters human or robo advice; big beasts waiting in the wings

US survey shows hybrid betters human or robo advice; big beasts waiting in the wings

The fintech revolution first came to prominence in the United States with companies such as Betterment and Wealthfront early arrivals at the robo advice party.

Europe has not been far behind with fintech research business TechFluence recently reporting 64 active robo advisors with a large number in train, ranging from start ups to extensions of established financial services businesses – ‘Robo advisors on the rise across Europe’

However tempting it is to throw a blanket over the new breed of digital investment managers and attach the tag ‘robo advisor’, in truth there is a very wide variation of propositions that range in terms of sophistication and intent – from fairly basic savings apps looking to engage millennials through to more complex wealth management and retirement propositions.

However frail their business case may at first appear there is seemingly no stopping the rising tide of robo advice and this is a movement that is being actively encouraged in the UK by regulator, the Financial Conduct Authority, as a solution to the ‘advice gap’.

As anyone that used the Tube, listened to the radio or engaged with personal finance on social media will attest to, the new breed certainly put their marketing dollars to work in the lead up to this year’s ISA deadline – ‘engaging the next generation of investors’, ‘improving financial literacy’ and ‘democratising investment’ were all key marketing messages.

there is a very wide variation of propositions that range in terms of sophistication and intent

However, acquiring new customers is an expensive business, and here, as in the States, many robo advisors are making their technology available to a new generation of financial advisors who are able to service a very much larger client base by delivering a combination of automated investment management and bespoke advice.

The challenges that this poses in terms of the definition of advice is well documented elsewhere on this site, but providing robo advice presents opportunities for wealth management firms to tap into underserved markets and increase productivity.

However, as David Wetz recently reported for Muckle ‘Pure vs hybrid advice and a view from the US’ many of the new robo advice platforms are just a first step to building the next level of service that customers increasingly demand – hybrid investment advice.

A recent study in the US for consultants Accenture shows that more than two-thirds of ‘emerging wealthy’ and ‘high-net-worth’ investors want a hybrid of automated and human advice over either a dedicated human advisor or robo advice; significant numbers of millennials and Generation X have already turned to hybrid services.

Accenture’s research suggests that investors’ attitudes are changing, and as is so often the case the UK market could reasonably be expected to behave similarly down the line; whereas basic financial planning and investment tools were once considered important when selecting an investment manager, respondents pointed to retirement and estate planning as key factors, with access to a dedicated advisor and specialist teams.

 

The changing role of the adviser

 

Whilst digital investment management tools may have changed the advisor’s role, this research showed that investors still want access to an adviser for investment ideas and customized advice; two-thirds want support when investing in new and specialised products.

Even if the advice is provided digitally, investors still prefer to deal with a human advisor for complex matters such as the aftermath of a death in the family or dealing with a protracted bear market.

However advanced the US may be considered in its adoption of fintech products, Accenture’s survey identified that there is still a relatively low take up of robo advice – 11% of millennials (born early 80s – mid 90s), 7% of Generation X (early 60s – late 70s) and just 3% baby boomers (mid 40s – early 60s).

Whilst nearly half of baby boomers said they used a financial advisor, nearly one in four of those surveyed believed they could personally manage their money just as well, highlighting the belief that the traditional relationship between investor and advisor is under duress.

Three-quarters of the wealthiest investors – net worth $10 million plus – and half of those with between $1.5 million and $10 million said they believe that human advisors don’t provide sufficient value.

56% of millennials—the next generation of investors targeted by robo advisors – question the value of a dedicated advisor with 40% saying they would never take advice from a financial advisor without first consulting another source.

However, in a hybrid world, whilst clients will access advice in multiple ways, it is believed that human advisors will play an important, if different, role.

investors were more likely to be satisfied with hybrid financial advisory services than with human-only or robo-only advice

The new breed will need to identify the services their clients value most highly and are willing to pay for, determine which ones they are uniquely positioned to provide, scale these interactions to profitable levels, whilst taking advantage of functions that have been automated.

Rather than being the single point of contact managing all of a client’s needs, the future adviser is likely to be part of a team of experts that can interact with and service the client as needed; hybrid models are likely to be far more flexible with automation and little, or no, interaction for everyday advice, ramping up as complexity (and fees) increases.

Accenture found that investors were more likely to be satisfied with hybrid financial advisory services than with human-only or robo-only advice, in terms of ease of money management, digital tools, explanation of fees, customised services and low-cost products.

Those using hybrid advice were 50% more likely than those using only traditional or entirely automated advisory services to say they proactively seek and receive assistance on financial planning; they are also among the most likely to have discussed family needs with their advisors including children’s and parents’ financial needs and estate & tax planning.

Accenture concluded that now is the time for wealth management firms to commit to offering a more well-balanced, hybrid model before non-traditional players such as Google, Apple, Facebook and Amazon enter the fray; almost 75% of investors surveyed said they would consider a non-traditional competitor because of its broader product offering and lower costs.

The ability to choose services that fit their needs, access digital tools and consult an advisor are all on top of investors’ wish list and companies that embrace these priorities are expected to show rapid growth by combining digital and human advice in the future.

 

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