Robo-advisers struggling to retain investors in 2022, research finds

Robo-advisers struggling to retain investors in 2022, research finds
The use of robo-advisers fell from 27.7% of US investors in 2021 to 20.9% this year, according to research from Parameter Insights.
OCT 05, 2022

The popularity of digital advice may have peaked.

After several years of growth among U.S. investors, the use of robo-advisers fell for the first time, dropping from 27.7% in 2021 to 20.9% this year, according to research from Parameter Insights. Even worse for fintech startups are the significant drops occurring among wealthier investors: Usage decreased 15% among those with incomes greater than $100,000, and 23.8% among those with more than $500,000 in assets.

It may be that wealthy investors are being targeted by traditional adviser channels offering full-service planning, market research firm Parameter Insights wrote in its latest Wealth Advice Research report.

“The traditional advisor led channel is doing a good job of bringing these customer segments into the fray,” the report stated.

The struggle to retain customers has been even greater at self-directed trading apps. After an explosion in popularity during the pandemic, use of online brokerages by U.S. self-directed investors fell from 35.9% to 22.9%, Parameter Insights found in a separate study.

This could point toward macro-economic forces driving the decrease in engagement. Buoyed by government stimulus dollars and a bull market, investors explored the various options available, but now are either cashing out or letting their assets sit on the sidelines amid this year's market turbulence.

"Many investors are facing extreme and complicated market conditions for the first time — causing some paralysis and panic," Josh Book, founder and CEO of Parameter Insights, said in an email.

Parameter Insights’ research found that robo-advisers may be struggling with awareness and brand recognition among consumers. The group of consumers who reported being unfamiliar with digital advice had been shrinking annually but grew in 2022. Those who claim to be highly familiar with digital advice were also unable to recognize any brands operating within the space, Parameter Insights found.

Micro-investing robos like Acorns and Stash saw large drops in the U.S. Usage of Acorns dropped from 7.5% in 2021 to 5.4% in 2022, while Stash fell from 6% to 4.8% in the same time frame. While this could suggest that the younger investors the firms target are just reeling from their first major market correction, newer entrants like MoneyLion saw modest growth.

Robo-advice offerings from large banks were a mixed bag, with Bank of America Merrill’s Guided Investing growing by 1.3% while J.P. Morgan’s Automated Investor dropped 1.4%, Parameter Insights reported.

One issue is that fintechs aren’t offering suitable off-ramps from DIY investing platforms. Struggling do-it-yourselfers looking for guidance are often faced with transfer costs and ambiguity about the value of what a robo-adviser offers compared to self-directed trading apps.  

Parameter Insights recommended that executives at digital advice firms ask themselves if they have done enough to educate clients about market volatility and investing time horizons, or if full-service banks are doing a better job at creating seamless on-ramps across all in-house savings and investing channels.

"We really think now is the time for the advised channels to shine," Book said. "The question for digital is how well they can meet their customers where they are, with increased personalization and clear messaging that lands in the minds of clients and prospects when they need it most."

'IN the Office' with Anna Paglia, global head of ETFs at Invesco

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