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Financial Planning > Behavioral Finance

Reading the Data on the Bright Future of Online Advice

By Bob Clark

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It’s probably just my nerdiness (is this a word?) showing, but I’m fascinated with the way people analyze and interpret data—particularly data in surveys and studies about the advisory industry.  

So my interest was piqued when I read the results of a survey conducted this past June and July as part of the Wells Fargo/Gallup Investor and Retirement Optimism Index. The headline of the August 15 press release read: “U.S. Investors Opt for Human Over Online Financial Advice,” which I found curious, after looking at the data.

If you want, think of this as test to see if your take is the same as mine. 

Here’s what the Gallup organization found, when they polled “a nationally representative sample of U.S. investors with $10,000 or more in stocks, bonds, mutual funds, or in a self-directed IRA or 401(k),” about their sources for financial advice. To its credit, in addition to the aggregated answers, Gallup provided the actual questions asked. As I’m sure you’re aware, how a question is asked can go a long way to determine how it’s answered.

Here’s Wells Fargo/Gallup’s first question:

“Now, thinking about financial advice on investing or planning for retirement, do you use any of the following, or not?”

The answers: 44% use “a dedicated personal financial advisor,” 35% use “a financial advisory firm (where you can call into a call center and speak to a financial adviser),” and 20% use “an online financial planning or investing website.”

Wells Fargo/Gallup’s conclusion?

“Even as access to the Internet has become ubiquitous in the U.S. and data analytics is highly touted for use in finance, U.S. investors are more likely to have a dedicated financial adviser than to use a financial website for obtaining advice on investing or planning for their retirement, 44% vs. 20%.”

Then, when they narrow down the respondents to people with $100,000 or more in invested assets, those using “a dedicated personal financial adviser” jumped to 53%; those using a financial advisory firm, with advisor call-in, 33%; and those using a financial website, 23%.”

Here’s how Wells Fargo/Gallup interpreted these responses of wealthier folks:

“…retirees and investors with $100,000 or more in invested assets are significantly more likely than their counterparts to use a dedicated financial adviser.” 

And here’s how Wells Fargo/Gallup summed up these findings:

“The survey shows that the great majority of investors feel they need expert advice to help them invest in the stock market… … And despite lots of buzz about online financial tools that allow users to submit their portfolios to computer algorithms, most investors still feel more comfortable involving a human, whether in the form of a dedicated personal adviser or a financial advisory firm that gives them access to live counselors in a call center.”

Interesting, no? For those of you who are playing along, now’s the time to come up with your own analysis of this data. Ready?

Here’s my take: My first observation is that in Wells Fargo/Gallup’s first  question, while 44% of respondees said they use a financial advisor, 20% said they use online advice: that means nearly half as many investors now use online advice as use live advisors.

And when they asked the more affluent investors in question two, the results were only slightly better for real advisors: 53% to 23%.

To me, these online advice results are BIG numbers. How long has online advice been widely available? Three years? Five at the outside? It’s unfortunate that Wells Fargo/Gallup didn’t provide results from previous surveys for comparison, but my guess is that the growth rate of people using online advice is way higher than those using human advisors. That would mean the gap is closing very rapidly. Is that what you thought?

However, the good news is that Gallup/Wells Fargo did offer some insight into the future of online advice. Curiously buried on the back page of the release, and without comment, they reported the results of one more survey question: “Think about the next two to three years, do you expect to be using online or mobile technology for your investing or financial advice needs more than you do currently, less than you do currently, or do you not expect this to change?”

Overall, 24% of the investors said they’d use it more; while just 3% said they’ll use it less. In the more affluent group ($100,000 more in investments), some 29% expected to use online or mobile more; while 4% said they’ll use it less. 

That’s a pretty healthy growth rate, and even higher for more affluent investors. I can understand why Wells Fargo Advisors might want to play down the future of online advice: hey, I’m not a knee-jerk fan of all things high-tech, either. But to me anyway, the results of their own survey paint a pretty clear picture that online advice is a force that more traditional advisors are going have to reckon with, sooner rather than later.

If that’s what you said, you get a cookie. Thanks for playing.

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See Investor Optimism Falls on Retirees’ Worries

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