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How High-Net-Worth Individuals View Robo Advice

They are not put off as much as wealth managers might expect, especially wealthier clients; however for those who don't appreciate algorithmic advice, nearly two-thirds say it's because they like the human touch

Many incumbent wealth management firms have responded to the rise of robo-advisors – software that advises people where to invest their cash – by partnering with the start-ups that pioneered the software or developing their own robo-like offerings.

In fact, nearly half of industry executives say they are likely to begin building proprietary, automated investment management capabilities in the next 12 to 18 months, according to CEB data.

It’s easy to understand why these firms are investing this money. If handled correctly, robo-advisors will improve wealth managers’ margins and expand their client base by providing various segments — including millennials, the affluent, and those comfortable with using digital financial services — access to low-cost advice that can also be scaled-up easily and cheaply.

Three Observations

On the whole, high-net-worth individuals – those who have sufficient funds to invest $1 million or more in capital markets – aren’t put off by robo-advisors but don’t see them as a replacement for in-person advice. A recent CEB survey asked high-net-worth (HNW) individuals about robo-advisors, and three observations stood out.

  1. Most HNW individuals are open to robo-advisors or robo-like offerings: Nearly two-thirds of HNW individuals report that they are open to working with a robo-advisor in the next year.

    While this receptiveness to robo-advisors may alarm some industry incumbents, there is an opportunity for traditional firms to capitalize on it clients are more open to using robo-advisor solutions offered by their primary wealth management firm than external robo-advisor solutions.

    Today, one in four HNW clients report that their primary firm offers automated investment management services similar to external robo-advisors.

  2. Wealth management firms may be targeting the wrong segment: As expected, interest in robo-advisors is higher among younger and more tech-savvy clients.

    Interestingly, however, the data suggests that wealthier clients (those with greater than $5 million+ in investable assets) are actually more likely to be interested in working with a robo-advisor than the core HNW segment (those with less than $5M in investable assets). Consequently, firms that are exclusively targeting the affluent segment with robo-like offerings may want to consider broadening their strategy.

  3. Robos are not able to replicate the in-person experience: Nearly two-thirds of clients who are not open to working with a robo-advisor cite the value of the in-person advice they receive from their current advisor as their primary reason.

    “Wealth challenger” advisors — those who lead conversations with unique insight and motivate clients to make difficult decisions — are especially well-positioned to defend against the onslaught of robo-advisors as they demonstrate the competencies that are most difficult to replicate through sleek client interfaces and automation.

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