Financial Technology aims to provide convenience and innovation. Financial advice aims to provide convenience and empathy.
In a study conducted by
Vanguard Research on the perceived value of human and digital advice, the glaring theme found in the research is that clients believe that there are uses for digital automation in order to provide convenience, but the unique strength of human empathy is
of utmost importance. Investors are looking for financial advice, and the information gained from those meetings is valuable. Robo-advice provides optimization with regard to taxes, and increased portfolio diversification. Human advisors provide a strong peace
of mind and an ongoing working relationship.
Human advice reigns supreme
Source: Vanguard and Escalent, 2021.
“9 in 10 robo-advised clients are considering switching to a human advisor in the future.”
Between the two offerings there are trade-offs and benefits for retention. The research suggests that robo-advised clients are primed to be targeted for a conversion to a human advisor, which is especially true as the client’s financial situation becomes
more complex. A symbiotic relationship in which both offerings are packaged together would prove useful for both the client and the provider. Most investors prefer a mix of the two services, human advisors are useful for knowing the client as a person, working
in the clients best interest, listening to their worries, and demonstrating a level of empathy for personal situations that a robot is unable to perform. With regard to robo-advising, most clients prefer the automations in managing taxes and capital gains,
forecasting and accounting for specific scenarios given varying market conditions and life events, diversifying investments, constant monitoring of each account, and simplicity of management.
Optimization of services to fuel growth
Time is a scarce resource for advisors. As it relates to providing advisory services, the research finds that segmenting your target market into categories of individuals who prefer the two different types of services is useful for the long-term viability
of the firm. In order to maximize time, many services can be outsourced to automation to scale the advice practice in a cost-efficient manner. Clients prefer a mix of the services, optimizing some services to automation will fuel growth and free up time to
handle more clients.
Source: Vanguard and Escalent, 2021.
“Human advisors should focus on delivering emotional and financial outcomes while automating portfolio construction and functional tasks”
Humans are better at connecting with their fellow humans, robots are better at computing large amounts of data. Vanguard found that when it comes to processing data, market information, and performing heavy amounts of computation: artificial intelligence
is the best choice. The actual management of money as it relates to the client’s current financial situation is best done by a computer. When it comes to interacting with the client, understanding their needs, and creating a level of trust: a human is the
best choice. Thus, the combination of the two services is a competitive advantage.
Digital services are not an outsized threat to the traditional advising business. Most clients will continue to prefer humans for certain tasks. True value is found in framing the emotional and financial outcomes towards success, and that is best done by
a human.
