Robo-Advisors Unlikely to Infiltrate the Top of the Market

The financial planning industry has been massively affected by technology. The Internet makes it easier than ever for consumers to identify and contact financial professionals and research the difference between various insurance products or plans. It has also given rise to “robo-advisors,” pieces of technology that analyze consumers’ financial situations and suggest appropriate investment strategies and insurance purchases.

These systems have prompted significant discussion among traditional providers, because robo-advisors threaten to usurp human financial professionals. Despite consistent improvements in the technology that underpins robo-advisors, they remain just one option for financial advice, and new data from LIMRA shows that they are unlikely to gain a foothold with high net worth individuals who have complex or large amounts of assets to manage.

Popular with younger consumers

Usage of robo-advisors is on the rise, but not in the general population. According to LIMRA, robo-advisors have a found a niche as a tool for young people who have minimal assets to manage. Young people are the most likely to know about robo-advisors, but even among the next generation, familiarity with these advisory tools is actually quite low. LIMRA found just a fifth of Gen Y individuals surveyed know about robo-advisors, and just above half those individuals actually use a robo-advisor service.

Even as awareness of robo-advisors grows, it’s not clear that these tools will make a huge dent in the traditional marketplace. According to data collected by Corporate Insight, robo-advisors managed around $19 billion worth of assets last year. While that seems like a large amount in isolation, it’s an extremely tiny piece of the overall retirement market.

In the end, the data points to a future in which robo-advisors provide a compliment to financial professionals’ other services.

A supplementary tool

The biggest advantage robo-advisors have over traditional financial services is simplicity. These tools are easy to start using, and available around the clock. That simplicity is also a detriment, however, because the robo-advisor is unable to deal with complex investment strategies, cannot carry on a detailed discussion about a client’s retirement goals and is unable to tap into the emotional issues that might be affecting a consumer.

Altogether these factors mean that robo-advisors are a good entry point into financial advice, but they cannot grow with a consumer as well as a true financial professional.

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