Data & Research October 15, 2015

Where Affluent Millennial Investors Turn for Advice

The way investors treat their assets is changing, especially among Millennials.
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Investors are starting to shift in the ways they invest, with more turning to so-called robo-advisers, according to Cogent Reports.

Affluent Millennials are the demographic most likely to have an adviser relationship, Julia Johnston-Ketterer, senior director at Cogent Reports/Market Strategies International, said during a webinar on Thursday. When it came to the actual portion of assets they park with an adviser, however, “they have the lowest percentage of assets” compared with other demographics.

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“Millennials are dabblers,” Johnston-Ketterer observed, “with different products that they manage in different ways. They are most likely to be interested in products that grow wealth. It is a complex world with complex relationships.”

More than two-thirds (69%) use some kind of advice, a moderate increase from the previous year’s 66%, and Millennials, at 75%, have the largest percentage of advised investors of any generation. “This generation has intergenerational wealth invested professionally to manage the legacy assets,” Johnston-Ketterer explained.

Overwhelmingly, Millennials prefer a blend of active and passive management, Johnston-Ketterer pointed out, a trend the research firm will continue to track, along with risk-tolerance levels and where advised assets are kept.

Affluent investors, including Millennials, don’t always know and understand the term robo-advice, Johnston-Ketterer said. In its survey, Cogent defines the term as a financial services firm that provides advice based on a computerized model, instead of investors turning to a financial adviser or managing assets on their own.

Brand recognition is another key identifier Cogent is following, and noted that legacy brands—the top three are Vanguard, Fidelity and Schwab—clearly dominate investor choice. With nearly half of investors (49%) interested in “robo” services but unable to name a specific firm, Johnston-Ketterer said, “the market is up for grabs; the door is open.”

Other findings in the survey are:

  • The average net worth of affluent investors stands at just over $900,000;
  • Nearly one-third of affluent investors (31%) are completely self-directed, Cogent found, managing their assets with no professional assistance whatsoever;
  • Just 11% of affluent investors have their assets managed exclusively by an investment professional; and
  • Investors who have some advice relationship were just as anxious and uncertain after the financial downturn as those without a relationship.

More information about Cogent Report’s Investor Brandscape is on Cogent’s website. 

In Practice October 15, 2015

Divisions Emerge in Use and Meaning of ‘Robo’

If any conclusions can be drawn about the expanding use of so-called robo adviser technologies, it’s that automation is not an all-or-nothing game. 
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More than half of advisers are using “robo” in some way, Financial Planning Association (FPA) research shows, but four in 10 have serious reservations about offering tech-based advising.

A recent FPA study explores some of the main reasons why financial advisory practices are adopting robo-adviser technologies. The research shows that numerous types of automated advice technologies are penetrating the advisory space, but all generally rely on asset-allocation algorithms to automatically build and maintain client portfolios at larger scale than the adviser could handle traditionally.

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According to the FPA, when asked why they are interested in robo, advisers frequently spoke about using the technology “as a supplement to the advice they provide, outsourcing investment management to focus on the value-add side of the business.”

When advisers use robo this way, the FPA says, they are able to create a segmented service offering and target younger or cost-conscious clients while also keeping higher-touch options available for client segments seeking more personal service. FPA President Edward Gjertsen says these advisers often feel financial planning is “a process that involves much more than a simplified approach in allocating one’s investment portfolio.”

“With that said, it stands to reason that some practices may be considering robos to augment current offerings, especially for younger clients and those with simple financial situations,” Gjersten explains.

NEXT: Changing the client conversation 

Respondents to FPA surveys identified a laundry list of topics that are influencing client conversations as part of the financial planning process. For example, many advisers are focused on “working with the next generation and associated estate planning issues,” another area where robo advising has its limits.

Other advisers said they are focused on helping clients plan appropriately for age-related change, including the death of a spouse, elder care and long-term care. In the defined contribution (DC) retirement planning space in particular, there is a strong focus on leveraging technology to help clients “define their income needs in retirement and design income strategies,” the organization says.

Despite the wide interest in robo, fully 42% of advisers say they still don't see a place for it in their practice. FPA Practice Management Director Valerie Chaillé says the resistance can partly be explained by the fact that financial planning professionals feel that conversations they are having with clients “involve so much more than asset allocation.”

“As we consider how to incorporate robo technology into our practices and how to charge for our services, it becomes increasingly important to effectively demonstrate and communicate the value we provide to clients through holistic planning,” she says.

Julie Littlechild, founder of If Not Now Research, which fielded the underlying adviser survey for the FPA, says less than a quarter of advisory clients report receiving “very high value relative to fees.”

“We see evidence in this study that planners are looking to combat the issue through specialization,” she notes. “While that is encouraging, the additional time required will force planners to evaluate how they charge, otherwise they risk negatively impacting profitability.”

The full report, which looks beyond technology trends, is now available at OneFPA.org.

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