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Can an Algorithm Assess Investors’ Complex Financial Needs?

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More investors are still using a traditional advisor compared to a robo-advisor, but a new report finds a growing opportunity for hybrid advice.

Nearly 23% of Americans in a survey are using a traditional financial planner or advisor, compared with 7% who are currently using an automated investing platform, according to a new report from the Financial Planning Association and Investopedia.

The survey, which was conducted among 2,002 users of between Aug. 25 and Sept. 14, makes the case that investors require both high-tech and high-touch forms of advice to satisfy their increasingly complex financial needs.

All of the survey respondents were U.S. residents over 21 who have input in their household’s investment decisions.

“The future of financial advice is bionic – a powerful combination of both [robos and human advisors],” David Siegel, CEO of Investopedia, said in a statement. “As investors get more comfortable with automated investing platforms, they’re starting to demand both the low-cost benefits such platforms provide and the irreplaceably customized and high-touch approach of financial advisors.” 

While only 7% of the survey respondents are currently using some sort of robo-advisor, 58% said they were familiar with automated investing platforms and 18% had searched for an automated platform.

And, for those respondents who are using a robo-advisor, satisfaction is fairly high with 73% indicating they are “satisfied” or “very satisfied” with the primary automated investing platform they are using. These investors cite performance (75%), transparency in fees (74%), accessibility on multiple platforms (65%) and investment options (64%) as the aspects automated advice that make them most satisfied.

However, 40% of survey respondents said they would be either uncomfortable or very uncomfortable with using a robo-advice platform during cases of extreme market volatility.

“Automated investing platforms have made lower-cost investment advice easily accessible and convenient, but they lack the same high-touch level of advice that financial planners/advisors can provide,” the report states.

The report finds that there is a growing opportunity for automated investing platforms and financial planners and advisors to work together.

According to the report, the top financial planning priority among the survey respondents was retirement planning (71%), followed by budgeting and spending plans (63%), and before-tax and after-tax investments (57% respectively). Other top concerns were tax planning, health care planning and debt management.

Looking at the financial issues people today need to address, the report finds that the preference of those surveyed was clearly for the advice to be given by a financial planner or advisor, although many also feel that quality advice can be accessed through an automated investing platform as well.

For example, 52% of those surveyed said they would prefer a financial advisor to help them with estate planning, compared with 18% who would prefer an automated investing platform and 30% who would prefer both. A majority also said they would seek out advisors to help them with elder care planning (49%) and tax planning (48%) as opposed to an automated investing platform (22% and 20% respectively).

Investment planning was more equally weighted among advice vehicles – 38% of survey respondents said they would prefer a financial advisor, 33% said they would prefer an automated platform and 29% said they would prefer both.

“No algorithm exists that can prudently assess the many areas of an individual’s financial life and make the necessary strategic decisions relating to retirement planning, estate planning, tax planning, health care planning, elder care planning and the many other personal financial areas most people face,” the report states.

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