Financial advisors are of two minds when it comes to Internet-based advice model, more commonly known as robo-advisors.
On the positive side, a majority of advisors – 70 percent – said Internet algorithms will encourage them to work harder and improve the way they serve clients. This is according to the U.S. Financial Advisor survey conducted by Natixis Global Asset Management.
The survey also found that 54 percent of advisors believe they could compete more aggressively for lower-income clients by implementing an Internet-based algorithm within their advisories.
But despite these optimistic outlooks, 46 percent of survey respondents said robo-advice presents a threat to their business models.
“We see conflicting (advisor) views of whether robo-advisors are competitive or not,” Bob Hussey, executive vice president of the Institutional Services Group with Natixis, told InsuranceNewsNet.
“The market is trying to figure out where the robo-advice model goes in terms of being a competitive threat or a value to them,” he said.
Natixis has conducted the advisor survey annually over the past five years. But this year is the first time the survey has asked about robo-advice, Hussey said.
In the past two years, large mutual funds and advisors such as Vanguard and Charles Schwab have launched Internet-based advice services. These services charge clients less money than that charged for full-fledged advice delivered by properly qualified flesh-and-blood advisors.
Asset volumes managed by Internet-based advisors, meanwhile, have grown and are expected to reach $255 billion within five years, according to a report published last year by MyPrivateBanking Research.
No matter where advisors stand on the issue of Internet-based algorithms, there’s little doubt that such models appeal to millennial investors, a key demographic that advisors want to capture.
Millennial investors have relatively little to invest and aren’t thrilled with paying higher fees. Yet they are very comfortable with Internet-based investing and the bypassing of the face-to-face interaction offered by traditional advisory models.
Advisors who haven’t yet warmed to the idea of competing for business with an algorithm concede that Internet-based models are necessary to capture young investors whose long-term investment needs will grow.
The bulk of advisors — 67 percent — said attracting millennials is an important part of their growth plan. Nearly three-quarters of respondents said that working with younger investors will require them to adopt a more flexible fee arrangement, the survey found.
In addition, 68 percent of respondents said advisors who have a younger client base will grow faster over the long term than those with older clients.
Today’s millennial investors become tomorrow’s mature investors. As these investors age, they will benefit from help with managing their liabilities, not just assets, from flesh-and-blood advisors who structure an broader risk management model that includes insurance coverage, estate planning and retirement strategies.
“Managing the liability side of their lives and estate planning are extremely difficult to engage in via electronic means, but that’s where advisors are saying we offer value,” Hussey said.
InsuranceNewsNet Senior Writer Cyril Tuohy has covered the financial services industry for more than 15 years. Cyril may be reached at [email protected].
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