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Investors Want a Robo With a Human Touch

Investors Want a Robo With a Human Touch

Investors prefer robo advisors that have some kind of human element, a new study found.

According to new research from Cerulli Associates, customer satisfaction with digital advice firms increased at least 15 percentage points when a human was involved in the advice process. Tom O’Shea, an associate director at Cerulli, said some companies more focused on online-only service should consider adding human service to stay competitive.

O’Shea added that the idea of a completely digital service completely devoid of human mediation is a myth, anyway.

“There is a misconception that digital advice means no human interaction between the customer and the firm delivering the advice,” O’Shea said, calling the robo advisor term “deceptive.”

“In truth, Cerulli has found that even the most automated advice platforms allow a consumer to reach a representative through a toll-free number or online chat.”

Cerulli identified a spectrum of just how much human interaction is available on various robo platforms. On one end are online-only companies like Wealthfront and WiseBanyan, while at the other end are companies like Personal Capital, Vanguard and Charles Schwab. Most other robo advisors fall in the middle, being mostly online but still offering a toll-free help number, chat, or some combination of the two.

In fact, digital advice firms are similar in most regards, Cerulli said. All use algorithmic portfolio construction, and most use ETF, prefer passive management, implement various tax-optimization techniques, apply account aggregation technology, and offer either low or no account minimums.

What distinguishes the companies are significant differences in their portfolio recommendations, even when given the same set of inputs for risk scoring. For example, Hedgeable allocates 2 percent of portfolios to currencies and 14 percent to commodities, while Schwab allocates 5 percent to gold and precious metals.

Betterment and Hedgeable are the only firms to not allocate any assets towards a REIT ETF. Wealthfront is the only firm to specify dividend-paying stocks as a separate, sub-asset class.

Going forward, Cerulli expects more firms to follow the example set by JemStep and Betterment of expanding beyond the direct-to-consumer market by becoming a turnkey asset management platform for advisors.

The research firm also expects “all financial services firms” will deliver online financial advice as millennials build wealth and seek help with investments. 

TAGS: Technology
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