U.S. investors are turning away from robo-advisors, according to a recent report. After several successive years of increasing participation in digital platforms, U.S. usage declined substantially in 2022, according to Parameter Insights, a company providing data-driven research for wealth management businesses. High-net-worth investors may be migrating to traditional advisor channels with full-service financial planning, the report says. Here’s what advisors should know.
Digital Advisor Use Dropped in 2022
Net usage of digital advisors declined substantially in 2022, according to the September 2022 report. Overall, U.S. digital advisor use dropped from 27.7% in 2021 to 20.9% in 2022. That’s a fall of 24.5%.
High-net-worth investors exited robo-advisor arrangements at the highest rates. Here’s how the data broke down along asset levels:
- $50,000 or less: A drop from 23.6% to 20.6% in 2022, which translates to a decrease of 3 percentage points.
- $50,000 to $99,999: A loss from 39.3% in 2021 to 25% in 2022, or a decrease of 14.2 percentage points.
- $100,000 or more: A decline from 37.3% in 2021 to 25% in 2022, or a decrease of 12.3 percentage points.
- $500,000 or more: A fall from 38.3% in 2021 to 14.5% in 2022, which is decrease of 23.8 percentage points.
High-net-worth clients may be rediscovering old-school advisor relationships and human interactions. “These higher-net-worth customers have been targeted by traditional advisor channels and are being enticed with full-service financial planning,” the report says.
Additionally, younger investors held on to their digital advisors at higher levels than older investors did. And women were less likely to dump their digital advisor than men were.
The Look Ahead for Financial Advisors
In the wake of the COVID-19 pandemic, for example, investors socked government stimulus checks into self-directed platforms with zero-commission trading and online tools. The recent bull market may have also had investors feeling confident in their online trading skills.
But 2022 looks very different. Ongoing macroeconomic concerns and a stomach-churning bear market have some folks ducking for cover. “In the midst of significant market turmoil in 2022, many investors have cashed out or chosen to let their investments sit dormant while weathering the storm,” the Parameter Insights report says.
As markets continue to fall, however, the need for advice and quality investment management services increases. “Many who thought they could do it themselves have been quickly disabused of this notion in the face of significant downturns and market volatility,” the report states.
For banks with robo offerings, the economic climate may open a window to promote the value of their advisory services to current clients.
And for human advisors, especially those targeting high-net-worth investors, this may spell an opportunity to make the pitch for an old-school, human-led wealth management relationship.
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FAQs
High-net-worth clients may be rediscovering old-school advisor relationships and human interactions. “These higher-net-worth customers have been targeted by traditional advisor channels and are being enticed with full-service financial planning,” the report says.
Do wealthy people use robo-advisors? ›
According to Investopedia's Affluent Millennial Investing Survey, while 20% of respondents use robo-advisors, the majority still report a preference for human financial advisors.
Why do clients leave their financial advisors? ›
Clients can part ways with their advisors due to poor communication, mismatched expectations, underperformance, lack of personalized advice, trust issues, high fees, and inadequate financial education.
Why are more younger people using robo-advisors instead of human advisors? ›
Robo-advisors are believed to appeal more to younger people because this demographic tends to trust robots more and prefers doing everything online. Robo-advisors are also more accessible in terms of cost and the amount you can invest.
Are robo-advisors better than human advisors? ›
Your financial goals or needs.
For straightforward goals like retirement or planning for college, a robo-advisor can be an appropriate option. But if you have more complicated financial needs or want help with more complex things estate planning or tax optimization, you may need a traditional financial advisor.
What is one of the biggest downfalls of robo-advisors? ›
Limited Flexibility
Most robo-advisors won't be able to help you if you want to sell call options on an existing portfolio or buy individual stocks.
Will robo-advisors replace financial advisors? ›
No, robo-advisors will not replace financial advisors.
How long does the average client stay with their financial advisor? ›
How long do clients stay with a financial advisor? The client churn for financial advisors is notoriously high. The average client lifespan for a financial advisor is between three and five years, with 45% of clients leaving in the first two years.
Why do clients leave their advisor on Morningstar? ›
The three most common reasons that clients fire their advisors are the quality of financial advice/services provided, the quality of the relationship with the advisor and the cost of service.
Why do clients fire their financial advisor? ›
While firing an advisor is rare, many of the primary drivers behind firing decisions are also emotionally driven. Often, advisors were fired due to the quality of the relationship. In many cases, this was due to an advisor not dedicating enough time to fully grasp their personal financial goals.
Most advisors do not beat market averages. There are popular index funds that track indices, such as the S&P 500, and a little over 80% of the time advisors and even actual mutual fund managers do not beat these taking 15 years into consideration. A majority of financial advisors will not beat the S&P.
How old are most financial advisors? ›
According to various studies and publications, the average age of financial advisors is somewhere between 51 and 55 years, with 38% expecting to retire in the next ten years.
Who is the target audience for robo-advisors? ›
The target customer for robo-advisors would be anyone who has a negative attitude toward traditional financial institutions.
What country has the greatest number of robo-advisors? ›
Over the past six years, roughly 180 million people have started using robo-advisors to build trading strategies, buy stocks, and grow their portfolios. Nearly one-fifth were from the United States, the world's largest robo-advisors market.
Are robo-advisors beating the market? ›
Do robo-advisors outperform the S&P 500? Robo-advisors can outperform the S&P 500 or they can underperform it. It depends on the timing and what they have you invested in. Many robo-advisors will put a percentage of your portfolio in an index fund or a variety of funds intended to track the S&P 500.
What is the ROI of a robo-advisor? ›
Robo-advisor performance is one way to understand the value of digital advice. Learn how fees, enhanced features, and investment options can also be key considerations. Five-year returns from most robo-advisors range from 2%–5% per year.
What financial advisors do rich people use? ›
What is a wealth advisor? Wealth advisors are a type of financial advisor who typically work with very wealthy clients and offer holistic financial planning, including services such as estate planning, tax help and legal guidance, in addition to investment management.
Who is the target market for robo-advisors? ›
Target Demographic
For robo-advisors, these include Millennial and Generation Z investors who are technology-savvy and still accumulating their investable assets.
What percentage of people use robo-advisors? ›
Surprisingly, our survey found that just 16% said they use these digital wealth management platforms to build wealth for retirement, and 9% of respondents said they'd use a robo-advisor to build long-term wealth.
Are robo-advisors still relevant? ›
Robo-advisor funds under management are projected to reach $2.76 trillion globally by the end of 2023. But growth has been on a largely downward trend for half a decade — and is expected to slow substantially in the next few years, according to a new report by Statista.
U.S. investors are turning away from robo-advisors, according to a recent report. After several successive years of increasing participation in digital platforms, U.S. usage declined substantially in 2022, according to Parameter Insights, a company providing data-driven research for wealth management businesses. High-net-worth investors may be migrating to traditional advisor channels with full-service financial planning, the report says. Here’s what advisors should know.
