With the proliferation of digital technology in financial services, some fear the industry features a disruption as profound as online shopping had on the retail market.
But research from Cerulli suggests this is unlikely to be the case. Instead, technology may actually increase demand for personalized financial advice from a human.
Despite seemingly non-stop developments of new technology for investors to monitor and manage their portfolios, the amount of self-directed investors has actually decreased from 45 percent to 33 percent across all households since 2010. At the same time, people who rely on an advisor increased from 34 percent to 44 percent.
Though convenience is a driving factor in new technologies across industries, the difference with financial services is the trust required by investors.
“Buying a well-known commodity becomes even easier when a sale is just a click on a top-sellers list away,” said Scott Smith, a director at Cerulli and author of the report. “Other than the unlikely event of a service provider putting unauthorized charges on the buyers’ credit cards, there is relatively little downside risk in the transaction.”
Wealth management is all about trust, as most households don’t feel comfortable making many financial decisions for themselves. Cerulli found that 81 percent of households were satisfied with their financial advisor, and the top reason given by households with $2 million of investable assets or less was the advisor’s reputation and trust. Wealthier families place more value in their relationship with an advisor, but still name trustworthiness, honesty and dependability as the second-most important factor.
Smith suggested that the adoption of technology into financial services would more resemble WebMD to medicine or activity trackers like Fitbit to fitness. Instead of threatening professionals in those fields, technology resulted in better-informed consumers who seek out professionals for help addressing a unique challenge.
“While purely electronic service models will attract some marketshare, these will not be predominantly from households that were in the personalized advice market in the first place, but rather from those that were already predisposed to handling these affairs primarily on their own.”