Robos gain traction with affluent millennials: Study

Robo-adviser users are often stereotyped as young, first-time investors with minimal assets who are just getting their footing in financial planning. Yet fresh data show robos are making inroads with affluent and experienced millennial investors, too. 

In fact, millennials are the demographic that uses robo-advisers the most, and 50% of those millennials have $500,000 or more in assets, according to a new report by Hearts & Wallets that surveyed 5,461 households.

By comparison, 22% of millennials using robos have between $50,000 to $500,000 in assets, and only 10% of millennials with less than $50,000 in assets use a robo. 

For other generations, the portion of investors with $500,000 or more in assets who use a robo-adviser drops to 18% of Gen X and 5% of baby boomer investors. 

The survey results also reveal that investment experience influences robo-advice usage and that the majority of experienced investors use both robo-advisers and human advisers.

Nearly half (45%) of consumers who have money in robos consider themselves “very experienced” or “experienced” investors, according to the study. Notably, more than half of these experienced investors (57%) also use a financial adviser.

“What's happening is this idea of blending human and tech advice,” said Laura Varas, CEO and founder of Hearts & Wallets. “Clearly, the two are complements, not competitors.” 

Despite other studies reporting a major surge in robo-adviser account openings, Varas said robo-advisers need to let go of the old strategy behind digital advice, such as transactional investing, and focus on new needs, such as education and support for taking action.

Firms that leverage this shift in investor demand will have the competitive advantage to increase robo-advice usage for the long haul, she said.

“The challenge for robos is to gain staying power with compelling value propositions that target specific customer groups,” Varas said. “Firms have only a few years to achieve critical mass, or they will be sold for parts like Motif and Folio Financial.”