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Robo-Advisors: Low Cost vs. a Personalized Approach 

Grassroots Research 

 

Kelly Reuba

5/12/2017 

According to two new Grassroots℠ Research surveys, robo-advice has the potential to help both investors – and advisors – alike. While automated services may be an attractive low-cost solution, not everyone is willing to forgo the personal touch.
Is the future of wealth management digital, or is this trend overplayed? While it may be too soon to tell, it's clear that "robo-advisors" – automated, online wealth-management services that provide algorithm-based portfolio-management advice – are continuing to attract attention from investors. Moreover, increasing numbers of financial advisors are beginning to use "systematic" or "robotic" investment strategies in their own practices.

To learn more about this trend in the private wealth-management industry, GrassrootsSM Research conducted two surveys in February 2017. The first targeted individual investors, while the second focused on independent and corporate financial advisors.

Investors like low fees but appreciate personal advice

The findings from our first survey indicated that, as expected, the lower costs associated with robo-advice are a key factor in the growth of these services. Slightly more than half of the individual investors we surveyed cited the lack of fees, or low annual fees, as the biggest appeal of robo-advisors. However, this didn't prevent investors who use financial advisors for private wealth management from also appreciating the tailored services their advisors offer.

Only 36 per cent of respondents said they were somewhat to highly willing to try a robo-advisor in 2017 – a decrease when compared with our February 2016 survey results (44 per cent). Among those investors who use a financial advisor, slightly more than half said they are highly unlikely to switch their investments either fully or partially to a robo-advisor.

Advisors see selective value in robo-advice

Financial advisors also told us that robo-advisors are not very disruptive to their businesses: Only 10 per cent saw any client interest versus 24 per cent last year. Some of this may be due to a slightly older demographic in our newer study, and advisors did say they expect to see a higher impact from robo-advisors as millennials earn more money to invest.

Investor net worth is another important factor: Advisors say that sophisticated investors with large portfolios expect a personalized approach that robo-advisors do not offer. This reinforces the finding that robo-advisors are more relevant to investors with smaller portfolios who are more sensitive to costs. We also found that advisors themselves are beginning to use robo-advisors as part of the services they provide – primarily to manage smaller accounts more efficiently. This again shows the cost-management value of robo-advice, which may end up bringing more lower-value investors into the advice realm.

The future is digital

Looking ahead, robo-advisors could become a greater competitive challenge to financial intermediaries – particularly given that younger investors expect to have more digital engagement with their finances. In the face of this challenge, advisors we surveyed said they will continue to emphasize and reinforce their value propositions, specifically the value of their broad financial-planning expertise and the personal relationship they can form with their clients. At the same time, we also found that advisors are committed to incorporating the latest technologies into their practices to help them work more efficiently with their clients:

  • Several advisors use improved planning and analytics software, including risk tools that help them have more informed conversations with their clients.
  • Others are also investing in improved customer relationship management tools.
  • Some advisors point to the future ability of artificial intelligence and virtual reality to help them customize services for clients and respond more dynamically to their needs.
While robo-advisors may be struggling to gain ground in some areas of the market, there is no doubt that digital technology could play a bigger role in private wealth management in the future.


Robo-Advice



GrassrootsSM Research is a division of Allianz Global Investors that commissions investigative market research for asset-management professionals. Research data used to generate GrassrootsSM Research reports are received from reporters and Field Force investigators, who work as independent, third-party contractors, as well as external research panel providers—all of whom supply research that may be paid for by commissions generated by trades executed on behalf of clients. We believe these sources of information to be reliable and are providing the information in good faith, but in no way warrant the accuracy or completeness of the information. We have no obligation to update, modify or amend this document or to otherwise notify you in the event that any matter set forth in this document changes or subsequently becomes inaccurate. In addition, information may be available that is not reflected at this time. We accept no liability whatsoever for any direct or consequential loss or damage arising from your use of the information contained in this document. We and our affiliates, officers, employees or clients may effect or have effected transactions for our or their own accounts in the securities mentioned here or in any related investments. The information provided in this document is provided for informational purposes only and shall not be considered investment advice. Any reference to a particular company shall not be considered an offer to sell, the solicitation of an offer to buy or a recommendation to buy, sell, or hold any security issued by such company. No part of this material may be i) copied, photocopied, or duplicated in any form, by any means, or ii) redistributed without prior written consent.


Allianz Global Investors Distributors LLC, 1633 Broadway, New York, NY 10019-7585, us.allianzgi.com, 1-800-926-4456.

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