Robo-advisor services will be a “significant part of every wealth manager’s future,” according to a study of US and UK investors.

“Robo advisors” might be more popular among the high net worth investor community than some industry observers first thought, new research suggests.

Young and wealthy individuals in particular show a “great openness, awareness and knowledge about robo advice,” according to the study of 600 affluent and wealthy investors in the US and UK by MyPrivateBanking Research. The Swiss firm also found that investors in the UK are more likely to use a robo-advisor than their US counterparts, and are willing to pay more for the service.

Indeed, while investors on both sides of the pond are generally similar in terms of their awareness of and openness to automated investment (or robo) advice, there are some “striking differences”, the firm said in its report, entitled Investors’ Attitudes towards Robo-Advisors – Evidence from the US and the UK.

The findings show that UK investors would pay on average 10 basis points more for robo (and human-only) advice. Meanwhile, a much higher share of US respondents said they do not think they will use robo advice tools in the future (at 28 per cent versus 12 per cent for the UK).

“There does not appear to be a sufficient pattern in order to hypothesize on the country differences, but as the US respondents are more price-sensitive when it comes to robo-advice and the US is more mature in terms of the growing number of providers, (including hybrids such as Schwab's Intelligent Portfolios), perhaps it is related to the competitiveness of the market,” Carmela Melone, an analyst at MyPrivateBanking, told this publication.

Data by wealth segments

The largest portion of the 600 respondents (367) had up to $500,000 in investable assets; 144 had between $500,000 and $1 million, and 89 had over $1 million. As previously mentioned, the study found that the adoption of automated wealth advice is occurring at a faster rate among high net worth investors than in the mass affluent segment, with current usage of online wealth management tools at 43 per cent versus 17 per cent respectively.

“The results for the mass affluent segment show that the segment is the most polarizeda in terms of their awareness of robo-advice, with most either having never heard of it, or are aware of the concept,” Melone said. “Few have a good or detailed knowledge of robo-advisors, whereas for the other segments this is more evenly spread. We expect that as more hybrid robos – especially under universal banking brands – launch their offerings the mass affluent will become much more knowledgeable in this area.”

This trend may also be due in part to mass affluent investors being more reluctant to dip their toes into the water in the first place, she added. For example, these investors were also the most cautious group in terms of the percentage of assets they would consider investing with an online investment tool, peaking at between 10 per cent and 25 per cent versus 25 per cent to 50 per cent among those with over $1 million.

“Firms targeting this segment with a robo offering need to have a very clear value proposition as we find the mass affluent are also the most neutral/lukewarm in terms of the benefits such a service could provide. In terms of current usage, the trend is the same for both the UK and US – higher HNW adoption,” Melone said.

Conclusion and recommendations

MyPrivateBanking said its findings provide “clear, empirical evidence on why automated advice and robo services are a significant part of every wealth manager’s future.” Indeed for Melone the stand-out result was the penetration of robo-advice into the high net worth segment thus far.

“If this rate of adoption were to continue, the forecasts of robo market share would have a far greater impact on assets currently under management (as opposed to new AuM coming from retail segments), and therefore wealth managers and private banks risk being 'gazumped' on the share of their client's wallets that they hoped for,” she said.

Among other recommendations, MyPrivateBanking emphasized how crucial it is to “know your target segments”. Certain aspects of online investment tools appeal to all investors, the firm said, adding that while the youngest group of discretionary investors are early adopters, automated services even appeal to busy, self-directed clients in the middle age group.

Meanwhile, it is also important to “be available on multiple channels” - while in-person advice and communication via telephone and e-mail still dominate wealth management clients’ demand for contact options, the use of more innovative channels is increasing, according to the report.

MyPrivateBanking also recommended that firms assess their “end-to-end investment lifecycle and identify elements which are candidates for automation” - from the onboarding phase to the actual delivery of advice. “Automation can enhance client satisfaction throughout the different stages of the advisory process,” it said.