Robo-advice is popular with millennials

By Helen Fisher on May 9, 2018

The rise in popularity of artificial financial intelligence.

 

A research study conducted by Australian research firm Investment Trends found that the use of robo-advisers has become very popular among millennials.

The firm surveyed over 10,000 online investors from February to December 2017 in Australia, France, Germany, Hong Kong, Singapore, Spain, the UK and the USA.

According to the research firm, the concept of robo-advisers no longer sounds like a strange concept, but the key to attracting investors to use robo-advisers is building trust in their ability to perform well.

Millennials currently appear to be the most interested in using them. However, the relative lack of savings of that generation could be a problem. A study by the Bank of America found that 46% of millennials had virtually no savings, while 21% had savings of less than £700.

Market Acceptance?

US investors appear to be the most familiar with the robo-adviser concept, with 39% of the investors surveyed by Investment Trends saying they were familiar with the investment product.

UK residents ranked second in familiarity, with 23% saying they were aware of robo-advisers. Australia ranked thirds, with 22% of the respondents saying they were familiar with the concept.

Recep Peker, the Research Director of Investment Trends, said that the company’s research found widespread acceptance of robo-advisers in the US, with about 1.6 million online investors using robo-advisers in 2017, which was almost a 200% increase over 2016.

Rich and Young

Across all countries surveyed, millennials were the principal age group that were using the services of robo-advisers, possibly due to lack of trust in traditional financial advisers.

However, members of wealthier age groups surveyed also expressed interest in robo-advisers. About 36% of investors over the age of 65 expressed an interest, as did about 40% of investors between the ages of 56 to 64.

“While current robo-advice users tend to be younger and less wealthy, the demographic profile of those interested in using robo-advice closely matches the broader investor population, highlighting a key opportunity for robo-advice providers,” said Peker.

He added that many investors of all ages want access to professional advice to improve their finances and reach their financial goals and that many think robo-advisers could be effective in helping them on their financial journey.

Digital Generation

The increased reliance on digital technology has had many positive aspects on society, but people need to have trust in the ability of technology to provide reliable solutions to their financial concerns. Sometimes a human touch is also needed when interacting with robo-advisers.

Over two-thirds of the investors surveyed who expressed a desire to use a robo-adviser said they would only follow the advice of a robo-adviser if follow-up customer service was available from a human.

Investors said the follow-up assistance could be a telephone conversation, a live chat or possibly even a face-to-face meeting.

“Building trust is vital to the success of robo-advice providers, and good customer service is the first step towards fostering trust. While younger potential users are more likely to trust and implement a recommendation without the need for human involvement, a multi-channel customer support is vital to get older investors over the line,” said Peker.

Robo European

A recent study by TechFluence, a technology research firm with offices in Frankfurt, found that robo-advisers are also becoming very popular in the European financial market even though the services are nowhere near as popular as in the US.

The firm estimates that the assets under management by robo-advisers in Europe totalled about $3.5bn (£2.5bn) at the end of 2017 as compared with an estimated $200bn (£140bn) to $250bn (£175bn) in the US. The estimated number of robo-advisers in Europe ranges 98 to 126 compared to about 200 in the US. The number of robo-advisers in Europe is expected to reach 500 by 2022.

The UK and Germany are currently dominating the growth of the robo-adviser trend in Europe. The UK market is the largest in term of assets under management, while Germany is experiencing the fastest rate of growth.

The Future?

As the market continues to grow, many banking groups are expected to enter the robo-adviser market.

The growth in the European market has also attracted a great deal of interest from major US robo-adviser providers. For example, BlackRock Inc. has acquired a minority stake in Scalable Capital, a robo-adviser that operated mainly in the UK and German markets.

The US and European robo-advisers operate differently. US robo-advisers tend to invest more in stocks than do the German robo-advisers, which mainly invest in fixed-income securities.

Each geographic area tends to exhibit a bias towards investments in their domestic markets rather than diversifying internationally.

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Lead Tech generates leads for financial advisers across four core markets. Financial advice, pensions and retirement advice, equity release, and private medical insurance.

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