Robo-Advisors Will Offer More Opportunities Than Threats to Advisors

As robo-advisors continue to attract clients’ assets and venture capitalists’ dollars, some advisors may wonder if they’re a threat, or at least a disruptor, to their business. A new study by Hartford Funds says, “not really.”

In fact, John Diehl, senior vice president at Hartford Funds, says that over the next few years, advisors will probably maintain their value in clients eyes; namely that when emotions are running high, advisors are the ones who can help.

Diehl acknowledged that he hadn’t opened his own account on any of the online advice platforms, but he said his “impression of them is that we’re in the early generation of [robo-advisors]. I still don’t think they’ll be attaching to those emotional issues over the next three or four years. Maybe I’ll be proven wrong, but it just doesn’t seem like that’s where their strength is.”

That is clearly advisors’ strength, though, according to consumers surveyed by Hartford Funds. Despite only 28% of advisors saying basic human interaction was the most important thing they bring to their client relationships, 72% of consumers (who unlike advisor respondents were allowed to choose more than one response) said interaction made a traditional advisor more appealing than a robo-advisor.

The survey found clear opportunities for advisors to position themselves as more valuable than online platforms. Although only 9% of advisors said education was the most important and irreplaceable aspect of their client relationships, fully two-thirds of consumers said education from a human advisor was more appealing than from a robo-advisor.

A clear financial strategy and a comprehensive service offering that includes retirement, estate and tax planning were also rated highly by consumers as services they’d prefer to get from a traditional advisor.

Furthermore, that enthusiasm for what advisors offer contrasts with relatively low enthusiasm when it comes to robo-advisors’ offerings. The most commonly cited benefit to robos was the potentially lower cost, cited by 46% of consumers. At the same time, 36% of consumers said there were no benefits at all to using a robo-advisor over a human advisor.

Diehl said that often, the “role of the financial advisor is mainly focused on accumulating wealth. What I see at the client-advisor interaction level is sometimes advisors believe their value to their clients is primarily and maybe exclusively based on their ability to manage assets and generate returns. Yet what we hear from clients is that’s just one component. [Clients say], ‘What I really want is someone who cares and really understands my situation and then can apply the right strategies and vehicles.’”

In fact, 74% of consumers said a financial advisor was a more appropriate choice for their situation, compared with 13% who chose a robo-advisor. Only 12% said neither was a good choice for them.

“It’s not rational thinking that causes people to take action,” Diehl said. “Often what we see is it’s emotion that puts money in motion.” Where consumers do benefit from online tools is in simple transactions where they already know what they want. “If you knew exactly what you wanted to get done, if you knew that you needed to pay a bill or you needed a cash transaction, you understand that an ATM or online bill pay from your local banking institution will probably allow you to do that much more efficiently,” Diehl said. In those cases, though, “the starting point is you already know exactly what you need.”