Digital Advice Delivery Has Both Perks and Limitations

A new analysis from Cerulli Associates projects the digital advice market will exceed $83 billion by the end of the year, with no sign of slowing growth through the end of the decade.

Still a small market segment compared with other advice pathways, the digital delivery segment is an increasingly important center of innovation and forward-thinking business development, according to Cerulli’s report, “U.S. Retail Investor Advice Relationships 2016: Embracing the Robo.” As the title indicates, the report is mainly focused on the practices of the retail advice market segment, but the findings are still applicable for defined contribution (DC)-focused firms.

“We believe that it is essential for traditional financial advice providers to view digital advice delivery not as a force that will displace them, but instead as a way to broaden their opportunity to deliver deeper levels of advice to a wider client base,” says Scott Smith, director at Cerulli. “The question is not whether traditional firms will offer digital engagement platforms, but which will best connect their advisers to clients in ways that highlight the value of advisory services beyond commodified aspects of portfolio management.”

The Cerulli research observes that growth for robo-advisers is strong now and will likely remain strong for some years to come, but at the same time, it is becoming increasingly apparent that robo-advisers “are not necessarily the fundamental disruption that the traditional financial industry has been concerned about.”

“Instead, they are a catalyst moving traditional advice providers into the digital age, used as an additional tool for enhancing the client service experience,” Smith contends.

Against this backdrop, the Cerulli report highlights that investors still perceive advisers who can understand life complexities and help set unique and individualized investing goals as highly valuable.

NEXT: Human advice remains crucial 

“Households' perceived need for investment advice has increased since last year,” Smith says. “With ongoing geopolitical turmoil, households continue to seek advice from a professional who can help them manage the turbulent times by focusing on goals and staying the course versus making panicked decisions that will have a negative impact on a portfolio.”

Cerulli’s analysis suggests the Department of Labor conflict of interest rule is likely to lead to some clarification in the roles of advisers and brokers among U.S investors, but the majority of individuals will still likely believe anyone selling or recommending financial products to be a fiduciary, regardless of actual obligations or reams of disclosure. As such, many investors expect deep levels of service from their service providers.

“Cerulli has found that many advisers ... purport to offer comprehensive advice, but actually focus the bulk of their efforts on asset gathering and portfolio management,” the report warns. “An increasing reliance on team-based practices, with staff dedicated to each element of the wealth management process, should help minimize these disconnects moving forward.”

The research finds that, “despite nearly continual assertions from new market entrants and the press that investors are desperately seeking lower-cost advice relationships,” actual survey data reveals that the vast majority of investors find value in their current human-based advice arrangements.

“The ever-increasing availability of information and tools has created the assumption that investors will increasingly migrate to self-service models, but allocations among various advice orientations has remained consistent within long-term variances,” the report concludes. “Though investors have access to the resources to manage their own financial affairs, they remain reluctant to take on this burden of responsibility.”

Information about obtaining Cerulli research reports is available online here.