New survey data from Hartford Funds has revealed that consumers and advisors are under-informed about the evolution of online investment options such as roboadvisors.
A rapidly growing category, roboadvisors are technology platforms that offer investment advice and selection based on an individual’s financial goals and manage those investments based on an algorithm for a low cost.
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Hartford Funds’ surveys of more than 1,000 consumers and 100 financial advisors provide insights into Americans’ personal finance preferences and practices when it comes to investment resources and advice as well as advisors’ knowledge and attitudes about roboadvisor platforms.
When asked about their familiarity with roboadvisors, half of advisors identified as being somewhat or very familiar. Seventy-five percent of all advisors surveyed were able to identify ways in which roboadvisors could enhance their practice.
Meanwhile, only 11 percent of consumers have heard the term, but after being provided an explanation of the platforms, 60 percent of consumers identified potential benefits of roboadvisors over financial advisors, with 46 percent citing a potentially lower cost option as the most attractive feature.
Consumer preference remains overwhelmingly with advisors, however, with 74 percent of Americans identifying financial advisors as being more appropriate for their personal investment needs. Consumers and advisors alike noted that the basic human interaction is what sets advisors apart from technology.
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By GlobalData"The issue consumers face is that they don’t have clearly defined goals and objectives. As a result, they are still inclined to rely on a person for financial guidance. This is where the convergence of traditional advisory services and technology can be very powerful," said John Diehl, senior vice president at Hartford Funds.
"We’re generally seeing that technology can create significant scale and efficiency for Americans if they have a clear picture of what they want to accomplish. However, establishing that clarity still seems to be primarily a human interaction as opposed to a technological exchange of information."
Despite the preference for advisors, the majority (59 percent) of Americans have never worked with a financial advisor – including 30 percent of Americans with a household income exceeding $125,000.
Survey findings suggest that consumers who are not opting to work with financial advisors aren’t necessarily turning to technology. Forty-five percent of Americans said they were not comfortable using online platforms to save, invest or manage their finances, while 53 percent indicated some level of comfort.
Technology use for financial purposes tends to be more prominent among younger Americans, as 68 percent of millennials indicated comfort using these platforms compared to only 30 percent of retirees. Interestingly, millennials are also most likely (93 percent) to identify why a human advisor is more appealing.
"Given the relative lack of awareness of roboadvisors among consumers, robo-knowledge can be a key differentiator for advisors," Diehl continued. "This can arm them with the insights necessary to further educate existing clients while engaging the next generation of prospects. Millennials in particular present an interesting opportunity as they realize the value of a human advisor, but are also the most tech savvy. Advisors who engage with them early on will be able to benefit the most as their personal finance needs become more sophisticated."
An advisor’s familiarity with roboadvisors appeared to be directly correlated to their ability to identify how roboadvisors can enhance their business. Only 54 percent of advisors who identified as being unfamiliar with roboadvisors could identify the benefits of these platforms to their business.
On the other hand, 94 percent of advisors who were familiar with roboadvisors were able to identify ways in which they could enhance their business. Thirty-eight percent of respondents in this group felt that roboadvisors could most enhance their business by allowing for different service models based off of a client’s individual level of needs, followed by helping attract new clients with lower account minimums (26 percent) and attracting a younger generation of clients (24 percent).
