Forget those rumors that the growing robo-advisor technology will make financial advisors a moot point.
New research from global analytics firm Cerulli Associates suggests that technology innovations will help grow — not hinder —an advisor’s business.
“Many assume that ongoing advances in technology will empower investors to handle their financial affairs without the assistance of traditional financial advisors,” the report states.
Cerulli doesn’t deny that technology innovations will transform how services are delivered.
However, the firm believes that there will be an ongoing, and potentially increasing, demand for personalized financial advice delivered by humans.
Scott Smith, director at Cerulli, points out how the data backs this claim up, too.
“Since 2010, there has been a continuous stream of developments in the technology available for investors to monitor and manage their portfolios. However, during this period the self-directed investor segment declined from 45% to 33% across all households,” Smith said in a statement. “At the same time, those households Cerulli terms 'Advisor-Reliant', who regularly consult with a financial advisor, increased from 34% to 43%.”
Despite all of the technological advances over the past four years, the number of self-directed investors (which Cerulli defines as households who use a variety of information sources to make their own investment decisions without the assistance of an investment professional or advisor) dropped by nearly 12 percentage points from 2010 to 2014, according to Cerulli.
Meanwhile the number of households that consult with an advisor, whether intermittently or regularly, jumped up by nearly 10% over the last four years.
“[M]ost households just do not have the fundamental understanding of financial topics that would allow them to feel comfortable making decisions solely by themselves,” the report states. “Cerulli believes that the increase in the availability of tools to help these investors explore their options will drive demand for personalized advice as investors gain a greater understanding of the vast number of inputs affecting their long-term outcomes.”
So rather than take business away from advisors, the technological advances and robo-platforms have potentially increased the need for advisors.
“WebMD and Fitbit activity trackers were initially seen as threats to demand for medical and fitness professionals, but have instead resulted in more informed consumers interested in receiving expert advice to address the unique challenges they face,” the report states.
What this shows, Cerulli says, is that consumers are not using technology to replace professionals outright. And, Cerulli thinks it will be the same of evolving technology on the wealth management market as well.
“Improved platforms will allow better communication between advisors and investors on an ongoing basis,” the report states. “Examples include replacing some office visits with other options or allowing for planning sessions with shared control of tools and calculators to explore various scenarios.”
According to Cerulli, these technology resources will help those in the wealth management space strengthen their relationships with their best clients while also bringing efficiencies to households in lower wealth tiers.
“While purely electronic service models will attract some market share, these will not be predominantly from households that were in the personalized advice market in the first place, but rather from those that were already predisposed to handling these affairs primarily on their own,” the report says.
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