Investors Less Likely to Heed Advice from Robo Advisers

In “COVID-19 and Robo Advice,” a report from Dalbar, the research firm surveyed 500 investors who had worked with a human adviser and 495 who had worked with a robo adviser this year, and found many investors are more comfortable with human advisers.

Robo investors were generally less likely to follow the recommendation of their adviser than traditional investors. The only recommendation that robo investors were more likely to follow was to invest more (71% versus 68%).

Reallocating assets was the most common course of action taken by both traditional and robo investors.

Doing nothing and waiting it out was a more common recommendation among traditional advisers and a more common course of action for traditional investors. Traditional investors who were recommended to do nothing followed that advice 73% of the time—making it the most faithfully followed recommendation.

Robo advisers are more likely than traditional advisers to contact clients each month. However, robo investors were twice as likely as traditional investors to be contacted less than once per year, suggesting that robo advisers’ contact with clients is a mixed bag.

Traditional investors were more likely to be contacted by their adviser during the COVID-19 crisis more than once and more likely to be contacted when investors needed advice the most.

The effect of communication timing and frequency of satisfaction were similar for both traditional and robo investors.

Email is the primary vehicle of communication for both robo and traditional advisers. However, robo advisers used more text messages. Robo advisers offer more two-way communication, but traditional investors are more receptive to this.

Robo investors said they were more satisfied with their adviser during the COVID-19 market crisis.

Investor confidence and trust have increased as a result of the COVID-19 market crisis for both robo and traditional investors, but it has risen more among robo investors.

Investors are more likely to retain their adviser after their investment experience during the COVID-19 market crisis, with robo investors more likely to do so.

Ninety percent of robo investors say their account balance is higher because of the help of their adviser, while 75% of traditional investors say the same.

Traditional advisers who did nothing or were recommended to do nothing reported a significantly lower satisfaction rating than investors who were given any other recommendation.

For both traditional and robo investors, there is no discernable difference in satisfaction based on whether they follow their recommendation or not.

Investors between the ages of 31 and 45 had the greatest satisfaction with their advisers during the COVID-19 market crisis, but traditional investors between the ages of 46 and 75 had relatively low satisfaction with their advisers.

Those with higher household income tend to be more satisfied with their adviser, be they traditional or robo. Investors who received proactive communication were significantly more satisfied with their adviser.

Robo investors say doing good for the community, outperforming benchmarks and transparency around performance help build better trust. Traditional investors are most swayed by great customer service.

Both types of investors also like proactive communication.

Two-thirds of robo investors would like to see their robo adviser suggest better ways to protect their investments, a significantly higher portion than traditional investors.

Both traditional (82%) and robo investors (94%) have become more comfortable investing after their experience during the COVID-19 market crisis. Robo investors are most likely to be prepared for the worst, with a defensive posture, while traditional investors are most likely to have a long-term view.

Robo investors are more likely to expect another mass shutdown than traditional investors. They are also more likely to expect a second market crash before the end of the year.

Both types of investor would be willing to earn less on their investments if advisers could guarantee against losses, and traditional investors were more likely to have this sentiment before the crisis.