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Financial Planning > Behavioral Finance

Next-Gen Clients Want More Than Robo-Advisors

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Advisors can do more financial planning and get paid for it, too, according to a new report from Aite Group.

That is, by using digital advice platforms to deliver advice at scale, firms can “convert a service they have already been providing for little compensation — financial planning — into a revenue stream,” states the report.

Noting that wealth management firm revenue has been declining amid the elimination of trading commissions and entry of low-fee digital investment firms, and advisors are spending more time providing financial planning that “traditionally” has gone uncompensated, a new generation of clients — older millennials and Gen Xers — might turn that tide.

Athough a previous survey of 400 advisors found less than 20% of clients willing to pay a fee for financial planning, the service is of “high value” to clients, especially in times of “high stress and uncertainty.” With this in mind, Aite wanted to find the “sweet spot” of how much would pay for a certain kind of service.

Aite looked at data from 622 households that made $100,000 or more. The sample consisted primarily of older millennials (age 29-39), Gen Xers (age 40-54), and baby boomers (age 55-73). More than half the millennials, 62% of the Gen Xers and 32% of the boomers earned $150,000 or more.

In an effort to scale advice through digital platforms, several financial firms have offered new services that provide access to an advisor through their digital platforms for a minimum investment, for example, between $20,000 and $25,000.

But some firms, such as Betterment, offer subscription and fee-based financial services from certified financial planners without a minimum requirement, states the report. Schwab Intelligent Portfolios Premium requires a $20,000 minimum balance but also charges a $30 monthly subscription.

Coach vs. Advisor

The study compared the interest of each generation in digital financial coaches — services that showed them, for example, where money was spent, savings goals, monitoring of progress, compared expenses to others, and real-time advice on how to spend money — and virtual financial advisors.

The virtual coach was a hit with the millennial segment, 71% of whom were very or extremely interested in using that type of service. Sixty percent of Gen Xers, too, were very or extremely interested. Only 11% of boomers showed a similar interest.

Further, millennials and Gen Xers were more likely to use the service if offered (75% and 72% respectively) by their advisor. Fewer than half of baby boomers were interested. Aite stated that these findings “indicate that hybrid offerings blending strong digital tools with access to a human advisor should find strong adoption” among older millennials and Gen Xers.

Main areas in which these segments of investors felt the need for more than what a robo-advisor provided included making sure they are invested properly (64% and 48% respectively) and understanding how much they need to retire (45% and 58% respectively).

Show Me the Money

Results of the survey also found the high-income millennials and Gen Xers who work with a human financial advisor through a digital platform — even if the advisor was virtual — would pay for the service.

In fact, 82% of senior millennials and 73% of Gen Xers would pay for a monthly subscription; 30% of millennials and 26% of Gen Xers would pay between $31 and $50 per month; and 19% of millennials and 14% of Gen Xers would pay more than $50 a month.

Aite noted that these results were “an encouraging sign for wealth management firms to monetize their investments in digital platforms.” In fact, the report stated that there was a revenue opportunity of $3 billion to $4 billion for subscription-based services for roughly 22 million Gen X and millennial households earning at least $100,000 — based on a $30 a month subscription price and U.S. census and income data.

The report sees the new digital financial planning and coaching offerings from firms like Schwab triggering a “business model innovation” in the industry. In fact, Aite Group “expects to see new pricing and advice delivery models emerge that will give more U.S. households access to much-needed financial advice.”

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