At the recent CoreShares ETF Exchange conference, ETFGI’s Deborah Fuhr made a surprising observation. According to research she has done on robo-advisors around the world, the average age of people using these services is between 45 and 49.
“There’s a perception that because it’s using technology it must be attracting younger people,” says Fuhr. “But it’s not millennials that are using them. It’s actually older people that are engaging with robo-advisors in general.”
Warren Ingram, executive director at Galileo Capital, which founded the robo-advisor Smartrand, says that they too have been surprised by who is accessing the technology.
“We haven’t done an actual age rating, but we were really surprised that the take-up has been right across all age groups,” says Ingram. “Initially, without any empirical evidence, we thought it would be younger people around the age of 30 who would be most interested, but our biggest investor was north of 50 and the range is really quite wide.”
Ingram adds that if one looks at it more broadly, the average age of clients accessing traditional financial planning services in South Africa is mid to late 40s. This is interesting because it suggests that the people using robo-advice are the same people looking for financial advice in general.
Fuhr believes a key factor behind this is that it’s often when people receive a payout from a pension or provident fund that they then need some direction about what to do with it.
“Every day in the US, 10 000 people turn 65,” says Fuhr. “Most of them have their money in 401K (retirement) plans where there is a limited number of products in which to invest. They are now looking to take their money out, but they realise that in order to make this change, they need some understanding of what they should be doing.”
They could approach human advisors directly, but many people don’t even know where to start a discussion with an advisor if they have no financial knowledge.
“It’s very difficult to have that conversation if you don’t know what’s out there or what questions to ask,” Fuhr says. “So they do some work to figure out what they need to look for, to get some perspective and understand what they’re buying.
“I believe robo-advisors are a very good source of this kind of information,” Fuhr adds. “But most people who use them don’t just use the robo-advisor services. They prefer a hybrid model. They use the robo-advisor to do research and gain some education, then they’ll call and engage with a financial advisor feeling more empowered and able to ask educated questions.”
Many robo-advisors can also be used anonymously, which Fuhr believes is an added attraction.
“I think many people are afraid to ask friends or family for help around finances because they don’t want to say how much money they have saved or what they are saving for,” she says. “Quite often it’s a bit of a taboo to talk about how much money you make. So culturally talking about finance and finances is difficult.”
“So I think people want to have somewhere they can go to learn,” Fuhr adds. “But many people, especially older people, don’t completely trust what they see online, so they still want to see a human advisor and be sure that they are doing the right thing.”
In South Africa, Ingram says that so far their experience has been a bit different. The people using their robo-advisor and their face-to-face clients have been separate.
“What we’ve found is that people using the robo-advisor either have a very simple, single need that they would like to have addressed and don’t need to sit down with an advisor for that one particular issue, or they have a reasonable level of financial knowledge and just want a co-pilot,” he says.
However, he does believe that the hybrid model is the future of the industry.
“If I look at how the robo-advice market is evolving, I suspect that those that are going to be most successful will be part and parcel of some wider business,” Ingram says. “A lot of them will plug into a big product provider where product and advice is linked together, for instance.”
In addition, it will be an extra tool for financial planners to offer a wider range of services to a broader client base.
“I think a lot of bigger financial planing businesses will use robo-advisors to cater to clients that they haven’t been able to serve before on a profitable basis,” says Ingram. “They will use that almost as a grooming field for clients that they hadn’t been able to serve in the past. And as those clients grow their assets and have more complex requirements, then they would migrate to a planning environment. I see little future for a pure robo-advisor with no human contact.”
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