The 3 Domains Of Financial Advisor Value: Why Human Advisors Continue To Thrive Amid Competition From Robos

The 3 Domains Of Financial Advisor Value: Why Human Advisors Continue To Thrive Amid Competition From Robos

The arrival of robo-advisors into the financial technology landscape more than a decade ago led many to believe that the combination of (relatively) low fees and digital presence offered by robos would entice many consumers to eschew human advisors and turn to these automated tools. However, since the introduction of robo-advisor technology, client behavior has suggested that these original predictions of robo dominance and the downfall of human advisors have not been borne out.

A new 2022 Vanguard Group report by Paulo Costa and Jane Henshaw helps explain why this turned out to be the case. By surveying households (with at least $100,000 in investable assets) that use human advisors, robo-advisors, or both, the authors found that clients of human advisors were not only more satisfied with the overall service they receive compared to clients of robo-advisors, but also that these clients perceive their human advisors to offer more value in three specific dimensions: portfolio value (i.e., optimal portfolio construction and client risk-taking), financial value (i.e., attainment of financial goals), and emotional value (i.e., financial peace of mind).

While clients of human advisors reported more perceived value from their advisors than did clients of robo-advisors in these areas, the Vanguard study also found that clients do have a preference for human advisors and digital tools to handle different aspects of financial advising. For example, the highest-ranked functions where clients preferred human advisors included feeling understood, having a connection/relationship, working in their best interests, and being empathetic to the client’s needs. On the other end of the spectrum, the areas where clients preferred digital tools included simplifying their portfolio for organized, cohesive management; diversifying their investments; managing capital gains and taxes effectively; and preventing details from being overlooked. Notably, these results were similar across client demographics, including age, wealth, and whether they currently use a human or robo-advisor.

These results suggest that human advisors who recognize and focus on the areas that clients want an actual person to handle – while potentially outsourcing other tasks that clients prefer to be handled through digital tools – could help strengthen their relationships with current clients (by allowing them to focus on the specific areas that involve connecting with clients) and promote firm growth into the future (by freeing up their time to work on business development). In fact, the study found that clients of robo-advisors are quite willing to work with a human advisor in the future, with 88% of these respondents saying they would be willing to do so (while only 4% of clients of human advisors said they would switch to a robo-advisor if they had to leave their current advisor).

Ultimately, the key point is that the Vanguard study shows not only that consumers continue to seek out human advisors, but also that those who do become clients feel that they receive high levels of service. Further, the results suggest that human advisors who focus on the areas where human support is most valued (including active listening and understanding their goals) while leveraging digital tools for other tasks are likely to attract more clients, including those who may currently be using a robo-advisor!

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