Data & Research November 4, 2015

Cerulli Forecasts $7.8T Robo Market

The rapidly expanding retail channel also means rapid growth in robo-advice providers.
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The fastest-growing distribution network in financial services is retail, and the fast-growing share is robo-advice, according to Cerulli Associates, the Boston-based analytics company. Last year, direct retail grew by 11.8% and now stands at $5.1 trillion in assets. Only the wirehouse broker/dealer market is bigger, according to “Retail Direct Firms and Digital Advice Providers 2015: Addressing Millennials, the Mass Market, and Robo Advice.”

As the retail direct channel has grown, the so-called robo-advisers have emerged as competitors, offering consumers a new, automated approach to receiving financial advice. Cerulli’s report takes a look at how direct firms and digital advisers affect one another in the changing financial services landscape.  

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Cerulli estimates the addressable market for retail direct firms and digital advisers, analyzing the market for both types of advice from the perspective of the consumer generations: Millennials, Generation X, Baby Boomers and Silent Generation. Because nearly any industry conversation around automated advice involves a discussion of Millennial behavior and preference, Cerulli examines the propensity of the generations to use retail firms and digital advisers.

Millennials have the greatest propensity of any generation to use a digital adviser, according to the report, with 54% of this age cohort open to having their assets managed by online-only providers.

Though Millennials show the highest affinity for online advice, digital advisers should also target Gen-X and Baby Boomers, as they still have more assets than Millennials. A sizable proportion of both groups (39% of Gen-Xers and 29% of Baby Boomers) are willing to work with an online-only adviser.

NEXT: Another plum opportunity for robo-providers.

Also highlighted is the large, underserved mass market of consumers who need financial advice but cannot attract the attention of a traditional financial adviser: Cerulli believes this segment is a rich target for digital advice providers.

More than 101 million U.S. households have less than $250,000 of investable assets. Of this number, approximately 76 million households have less than $50,000 in investable assets. Retail direct firms and  digital advisers have an opportunity to address these largely forgotten mass- and middle-market consumers by creating scalable, online advice solutions.

The notion that digital advisers provide portfolios without any human interaction is false, according to Tom O’Shea, associate director at Cerulli. Many of the top digital advisers considered to be robos offer toll-free phone support or online advice. As retail channels add digital advice and digital advisers use human service reps, the two channels are converging: both providers are moving toward a model that combines online advice with human support. O’Shea says.

“To be successful, digital advisers will need to develop a strategy that incorporates the human element into their service model,” O’Shea says. “While some consumers may feel comfortable receiving all of their advice digitally, never interacting with a person, this is a small segment of the overall population. Most consumers want to know that they can reach out to a person to solve a problem with their finances.” 

More information on “Retail Direct Firms and Digital Advice Providers 2015: Addressing Millennials, the Mass Market, and Robo Advice,” including how to purchase, is on Cerulli’s website.

The Markets November 4, 2015

Retirement Investors Need to Understand Role of Risk

“Understanding how risk factors into your plan can help build financial confidence,” says Marcy Keckler, with Ameriprise Financial.
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Seventy-three percent of American investors tend to avoid risk entirely or weigh risk very carefully when engaging in financial decisions, according to the Financial Risks & Investor Attitudes study by Ameriprise Financial.

The study found 31% of investors surveyed are what Ameriprise calls Risk Avoiders, who are the most guarded when it comes to financial risk-taking. Eighty-nine percent of this group view their outlook on risk as “cautious.” But, while nearly half (42%) of respondents in this profile claim they are not willing to take risks with their finances, many are unknowingly increasing their exposure to risk, Ameriprise says.

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The study found many people in the Risk Avoiders group report being underinsured, only make investments with guaranteed returns, and some store their savings in cash. This group is also less likely to conduct the research necessary to help mitigate risk. The majority of Risk Avoiders are Baby Boomers and female (61%).

Forty-two percent of investors surveyed are what Ameriprise calls Risk Mitigators. Investors in this profile characterize themselves as willing to take risks after significant research (89%), but also associate risk with loss or uncertainty in their investment outlook. Risk Mitigators are more engaged in actions such as diversifying investments and being sufficiently covered by health and life insurance. However, they remain uncertain about their approach to investing and risk.

Risk Mitigators prefer low-risk investments and shift to conservative choices during periods of market volatility—decisions that may not always be in their best interest. Demographics in this group are fairly evenly split between Millennials, Gen X, Baby Boomers, and among gender.

NEXT: Who’s willing to take more risk?

One-quarter of investors surveyed are what Ameriprise calls Risk Managers. All these individuals see financial risk as an opportunity. Consumers who fit this profile are willing to take informed risks after conducting research and focus on growing their retirement savings through investing. They pursue well-thought-out risk mitigation strategies, such as assessing financial decisions along with diversifying and balancing investments.

Nearly half (45%) of Risk Managers invest heavily in the stock market, and the majority report understanding the details of their 401(k) plans. Risk Managers are predominately male (61%) and are represented equally across the three generations surveyed.

Just 3% of investors surveyed are what Ameriprise calls Risk Embracers. They are highly motivated investors, many of whom associate financial risk with “excitement” (39%). A majority of investors (64%) in this profile characterize themselves as “real risk seekers,” with 76% indicating that they are willing to make high risk and high return investments. This group also admits they are more willing than their peers to take risks in other areas of life such as borrowing too much when buying a house, or making a career change with less financial security.

While 53% of respondents in this group consider themselves knowledgeable about investing, they are primarily focused on growing their investments versus employing mitigation strategies to protect assets. The majority of Risk Embracers tend to be Millennials (56%) and male (67%).

“Investing for the long-term, while also trying to navigate market swings, is one of the biggest challenges facing investors,” says Marcy Keckler, vice president of Financial Advice Strategy at Ameriprise. “Whether you are an experienced investor or beginning to build your retirement nest egg, having a comprehensive financial plan and understanding how risk factors into your plan can help build financial confidence.”

The Financial Risks & Investor Attitudes study surveyed 3,000 Americans between the ages of 25 and 70. Respondents ranged from Millennials with at least $25,000 in investable assets to Gen Xers and Baby Boomers with at least $100,000 in investable assets. More information is at www.ameriprise.com/financialriskstudy.

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