Despite the hype, future of advice is hybrid: Vanguard

The future of digital financial advice might not be all that digital after all. According to a new study published by The Vanguard Group Inc., the vast majority of advised clients (90%) aren't interested in totally digital advice, commonly referred to as robo-advisers.

While investors want automated options for certain portfolio services, like handling diversification and tax optimization, clients prefer to have the emotional support of a real-life practitioner when making everyday investment decisions. 

“Frequent financial news headlines may lead people to believe that human advisers are under threat from technology,” wrote the authors of the study, Jane Henshaw, head of investor behavior at Vanguard, and Paulo Costa, a behavioral economist at the company. “In the last two years, the impact of Covid-19 has further affected face-to-face models.”

Despite the headlines about Wall Street’s impending digital disruption, the survey of about 1,500 clients fielded in July showed that most investors have strong loyalties to human financial advisers. 

While robo-advisers have stepped in to provide younger investors with professional services, as their financial needs grow, so too does their desire to reach out to a professional. Almost nine out of 10 robo-advised clients (88%) would consider hiring a human adviser, according to the research.

The study suggests wealth managers should consider automating their portfolio management services and bringing on robust technology to scale their business, while saving time to strengthen their in-person relationships.

Some of the industry’s largest companies — including Vanguard, BlackRock Inc. and UBS Group — have already combined human wealth managers with digital technology and launched both stand-alone and hybrid advice options. 

Vanguard’s Digital Advisor is one of the least expensive investment services available at only 20 basis points, or an annual cost of just $6 on the minimum investment of $3,000. Combined with the company’s human-hybrid option Personal Advisor Services, assets under management at Vanguard well outpace those of other digital options, at more than $200 billion.

The January announcement of the $1.4 billion acquisition of Wealthfront has further blurred the lines between the robos and more traditional wealth managers. UBS’s acquisition of the robo may have put an end to Wealthfront co-founder Andy Rachleff’s belief that “software is better than people,” but it highlights the consolidation coming to the robo-advice industry and the need for a more hybrid approach.

David Goldstone, CEO of the robo-adviser research firm Backend Benchmarking, said digital advice providers should brace for additional acquisitions as venture capital and private equity investors look to exit their investments in robo-advice companies and sell their stakes to the highest bidder.

“The robo-advice industry has already experienced the lion’s share of consolidation,” Goldstone said. “The reality is there are not many independent robos left.”

[More: Best-performing robo-advisers of 2021]