Robo-Advisors for Financial Benefits? Don’t Get Ahead of Your Workforce

A study by LendEDU, which is in the business of refinancing student loans, found that despite Gen Y’s and Gen Z’s penchant for technology, they’d rather deal with a human beings than robo-advisors when it comes to getting financial advice. With the Blade Runner sequel now hitting old-fashioned theaters–you know, the kind where you watch a movie outside of your house with a bunch of strangers–this seems like a good time to examine what the company has to say.

Financial Advice BenefitsAccording to the company’s poll, some 46 percent of 18 to 34 year olds who are saving for retirement work with a financial advisor–double the number who are relying on what it calls “robo-advisors.” Only 24 percent said they’ve tried an automated financial advisor. Of the 76 percent who haven’t, nearly two-thirds said they’d never heard of a robo-advisor in the first place. LendEDU’s conclusion: Better marketing could lead to “a huge uptick” in the number of Millennials who give such services a try.

Mike Brown, the company’s research analyst, writes that these results are “especially eye-catching when you consider the burden of hiring a real-life financial advisor is tenfold to that of going to the App Store, scanning your iPhone fingerprint, and downloading the robo-advisor of your choice for free.” On top of that, he notes, human investment advisors cost more in terms of fees.

Convenience Only Goes So Far

So why do Millennials prefer people over technology here? It seems to come down to trust. LendEDU says that about 52 percent of its respondents believe robo-advisors are more likely to make mistakes, compared to about 48 percent for human advisors. Meantime, and more important, 62 percent think robo-advisors are more likely to lose their money, and nearly 69 percent believe human advisors will get them better returns on their investments.

So, Millennials may love their technology, but not when it comes to something as important as investing. The biggest selling point for robo-advisors seems to be their convenience: About 28 percent of respondents preferred robo-advisors because they’re accessible 24/7.

Not surprisingly, just about 18 percent had similar feelings about traditional advisors. “If it is 2 am and you cannot sleep because you’re stressed about the performance of your investment portfolio, you will still be able to login to your robo-advisor app and quell those fears,” LendEDU observes. But we have to wonder how many 20- or 30-somethings stay awake nights worrying about their portfolio. (That said, we don’t deny that Millennials like to do things when they want to do them, without being hamstrung by somebody else’s schedule.)

One other point struck us: An earlier poll by LendEDU found that 59 percent of “investment-minded Millennials” said they were scared of the stock market. That goes a long way toward explaining why the majority of the more recent poll’s respondents said traditional advisors made it easy to begin investing, compared to 38 percent for robo-advisors.

“One would think robo-advisors simplify the investment process, and perhaps they do. But, having a financial advisor allows you to bounce questions off a trained, knowledgable professional, and this could be greatly beneficial if you are a novice investor,” Brown observed. That’s something of an understatement. Investing is increasingly complicated, and while robo-advisors may meet Millennials’ needs after they’ve gotten their feet wet, it’s not surprising that many want to start out with a human expert at least looking looking over their shoulder.

How Far Can Robo-Advisors Go?

But perhaps the most intriguing number LendEDU shared wasn’t even a part of its survey. According to Business Insider, robo-advisors will manage just 10 percent ($8 trillion) of global assets under management by 2020. That strikes us as a surprisingly small number when the number of global smartphone users is expected to hit 6.1 billion that same year.

True, the lion’s share of that growth will take place in emerging markets, where investment management may not be given the same attention as it gets in the U.S., and institutional and professional investors account for a large chunk of the total. But it does makes us pause when we hear of financial benefits providers wax poetically about the robotic future. This seems to us another area where the introduction of technology solutions should be paced to match the knowledge of its user base.

Copyright: kritchanut / 123RF Stock Photo

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