Overall awareness still low but expected use forecast to climb sharply over next five years.
While
robo-advisers have not yet caught the imagination of most consumers, those who know about online investment platforms are likely to use them.
In a survey conducted by A.T. Kearney of 4,000 consumers with investable assets, 20% said that they are aware of robo-advisory services, defined as solely online investing vehicles.
While just 4% said that they were extremely likely to use robo-advisory services for managing investable assets, 10% were very likely, 19% were likely and 36% said they were somewhat likely. Less than a third of respondents — 31% — were not at all likely to adopt a robo platform.
Awareness of robo-advisory services
% of consumers aware of robo-advisory services
"The greatest takeaway is how clear consumer demand for the low-cost, robo investment service is," said Bob Hedges, a partner at A.T. Kearney and the author of the study. "The awareness is high, the interest is high, the likelihood to adopt is strong and low price is going to be very important."
According to A.T. Kearney's forecast, the adoption rate of robo-advisers will catapult automated investment services into mainstream in the next three to five years. The research firm expects the percentage of total investable assets that robo-advisory services manage to jump to 5.6% in 2020 from 0.5% today.
The most interest is coming from investors who want to take an active role in managing their investments. Of the early-adopters, 33% identify as self-directed and another third are self-directed but seek occasional guidance. As for the rest, 13% are advised, 4% are managed and 17% currently have no stock or bond investments.
Service model for household investments
% of respondents who selected each service model
"We have large numbers of people who want to interact with their money in the same way they interact with so many other parts of their lives," said Bill Harris, chief executive of Personal Capital, an online investment platform.
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Robo-advisers are a hot option among younger, less-affluent investors. In a Cerulli Associates study from April, 20% of investors under the age of 30 said that they
did not feel as if they were a top-priority client for advisers, and 31% of those between ages 30 and 39 agreed with that sentiment.
"They're busy, they're professional, they don't have a million dollars right now — although they may have a million 10 years from now — and they're consumers of technology, so we're bringing them a disruptive investment product," said Mike Kane, CEO of the robo-adviser Hedgeable.
Vicki Zhou, co-founder and co-CEO of WiseBanyan, a free robo-adviser, said technology "makes what we do very scalable."
Of course, there's also the delicate balance with finding the right pricing model.
Estimated total assets under management of U.S. robo-advisers
In trillions of dollars
Fees are getting shaken up, and for financial advisers considering
adding an automated investment platform of their own to compete with robos, a key factor is determining exactly
what to charge.
"A lot of advisers bundle together their advisory services," said Howard Kramer, a financial adviser with H.A. Kramer & Associates in Plantation, Fla. "Robo-advisory firms are unbundling that and forcing advisers like me to charge a fee just for advice."
Personalized advice is the difference between advisers and robo platforms, he said.
"It's not robo advice — it's robo management," Mr. Kramer said. "When it's about advice, it's about listening to what's going on in a person's life."
