From attracting potential clients to putting pressure on the industry to lower fees, robo-advising will affect the wealth management industry, according to a recent Scottrade Advisor Services study.
The study revealed 88 per cent of RIAs surveyed believe as robo-advising continues to grow in the financial advising landscape, it will transform the industry.
Of those, nearly 60 per cent say it will put pressure on the industry to lower fees.
Robo-advising is defined as online services that use analytical tools to create financial plans or investment portfolios for investors.
“As technology continues to permeate our everyday lives, robo-advising can benefit certain investors by providing more choice across the financial services marketplace,” says Matt Wilson, president and CEO of Scottrade. “Additionally, advisors who leverage this concept will likely be able to add scale to their businesses by aligning client preference to solutions provided. While average fees may come down at some point in a macro sense, it will likely be a result of helping more clients across various price points and levels of service.”
Of those who believe robo-advisors will change the industry, nearly half believe it will put pressure on RIAs to appeal to younger investors, and 46 per cent of respondents believe investors will expect newer ways of interacting with advisors.
Those new interactions could go a long way toward cultivating newer relationships with younger clientele. According to the study, in terms of volume, RIAs state they see fewer prospective or new Gen Y clients than all other generations.
As robo-advising grows into the everyday lexicon of financial advising, registered investment advisors say they still believe they hold an important role in helping clients manage their finances. Two out of every three advisors polled say these online tools lack other benefits – 80 per cent believe the lack of human interaction is the biggest issue for robo-advisors, followed by lack of knowledge transfer and lack of service tied at 46 per cent.
“Life sometimes gets in the way, and clients may need varying degrees of help to prepare for new challenges which could include college savings, buying a home or retirement,” Wilson says. “Markets – and uncertainty – get in the way as well. Regardless of where investors choose to get help with their finances, staying the course is important as can be seen from the 2008-09 downturn when holders of 401(k) accounts went to cash – missing a historic run-up.”
Human interaction is only one benefit to working with a financial advisor. When asked about the benefits of working with a financial advisor, 95 percent of the respondents said investors would say their advisor has their best interests at heart, followed by helping clients reach their financial goals at 84 per cent.