Robo or human advice? Investors want both in one place
February 22, 2022
February 22, 2022
As digital "robo-advice" offerings have expanded in scope and availability, questions have arisen about the future of traditional advice given by humans. Will digital advice take over?
Our research finds that human-advised clients are, in fact, not likely to switch to digital advisors. Quite the opposite, 9 in 10 robo-advised clients are considering switching to a human advisor in the future.
At the same time, clients believe that there is some room for automation of services in a practice.
For human advisors, then, perhaps the most useful strategy is to figure out how to incorporate both modes of advice into their practice. We asked 1,500 advised clients in the United States about loyalty and perceptions regarding both types of financial advice.
Among our findings:
Clearly, investors want financial advice and find it valuable. Our survey asked investors to estimate their annual portfolio returns achieved with whichever mode of financial advice they used. It then asked them to estimate what they thought their returns would be over a three-year period without the assistance of their advice service.
Individuals working with human advisors estimated that on an annualized basis, they achieved a 15% average return with the help of their advisor, and estimated they would have seen only a 10% return if they had been unadvised—making a perceived value-add to annual performance of 5%.
Those with digital-only advice reported perceived average portfolio returns of 24% using their digital advice service. They estimated their return would drop to 21% if they did not use a digital advisor—making a perceived value-add to annual performance of 3%.
While the advice landscape is indeed evolving with the breadth and depth of digital offerings becoming available, our research indicates investors maintain significant loyalty to human advisors.
Survey participants were asked, "If you had to leave your current [human] advisor today, what type of advising relationship would you search for in the future?"
For investors that already use a human advisor, 93% said they would choose an advice service that includes a human advisor in the future. Despite the common headlines about technology replacing humans, our data suggests that investors have strong loyalty to keeping a human financial advisor.
Conversely, such loyalty did not exist when it came to digital-advised investors presented with the potential opportunity to hire a human replacement. When we asked current robo-advised clients about their future preference for advice delivery, 88% of those clients said they would be willing or extremely willing to work with a human advisor in the future.
We believe this has strong business-development implications for human advisors: Robo-advised clients could represent an untapped and under-targeted market to convert for human advisors, especially as those investors’ needs become more complex.
Respondents were asked, "on a scale of one to seven, how willing would you be to work with a human financial advisor in the future?"
Investors did tend to favor one mode of advice—human or digital—for different types of advice tasks and services. For instance, investors said they preferred a human advisor when it came to:
When it came to activities with a strong emphasis on portfolio construction and more functional tasks, investors preferred the service delivery be digital and automated:
Human advisors can take away a number of action items from this research in order to remain competitive in the evolving advice landscape.
Examine Vanguard's complete findings into investor's perceived value of advice by reading the research report quantifying the investor's view on the value of human and robo advice.
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