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By Paulo Costa, Ph.D., behavioural economist, Investment Strategy Group, Vanguard
As part of our study on Quantifying the investors’ view on the value of human and robo-advice, we asked 1,500 advised US investors about the value they receive from their human or robo adviser and whether they are likely to continue with their current choice of delivery (human or robo).
Last week, we shared that robo-advised investors are far more likely to switch their choice of service compared to a human-advised investor, while both human- and robo-advised investors believe they receive substantial portfolio value from their adviser.
Our research also looked at other ways to value advice – emotional and financial value as well as portfolio value1 – with emotional value a clear differentiator for human-advised investors. The findings, summarised in the graphic below, suggest advisers should highlight the emotional value they can deliver when positioning their services to potential and existing clients. The research also looked at which elements of advice investors prefer to be delivered by a human and which through an automated service, which we explore in more detail below.
Human-advised clients derive more emotional value from advice than robo-advised clients
Source: Vanguard, 2021. Notes: Survey conducted in July 2021. Portfolio value measured on portfolio management activities, such as asset allocation, diversification, rebalancing and performance; financial value measured on financial planning, including establishing goals, saving and spending strategies, debt management, retirement and estate planning; and emotional value measured through outcomes including trust and confidence in your adviser, peace of mind that you will achieve your goals, and assurance in times of market volatility.
To quantify perceived emotional value, we asked investors about the financial peace of mind they receive from their adviser. First, we asked whether investors had peace of mind knowing that their human or robo adviser was looking after their investments, with peace of mind defined as ‘a positive feeling of knowing that your investments are on track’.
We then asked investors whether they would have peace of mind if they were managing their investments on their own. As the next chart shows, while both sets of investors gained significant peace of mind with their chosen delivery of service, only 24% of human-advised clients believe they would have peace of mind managing their own investments, compared with 59% of robo-advised investors.
Human-advised investors gain more peace of mind
Source: Vanguard and Escalent, 2021. Notes: The survey was conducted in July 2021. The sample includes all who responded to the question, for a total of 1,308 human-advised and 337 robo-advised clients. Investors could rate peace of mind from 0 (“no peace of mind at all”) to 10 (“a great deal of peace of mind”). Clients were considered to have a peace of mind if their rating was between 8 and 10.
The research also looked at which specific services investors prefer to be delivered by a human and which through an automated service, which can ultimately guide advisers in positioning their offering to strengthen and grow their practice.
Our study found that investors said they preferred a human adviser when it came to:
However, investors preferred the service delivery be digital and automated when it came to activities with a strong emphasis on portfolio construction and more functional tasks, such as:
Human advisers are well-appreciated by their clients, who perceive significant added value from partnering with their adviser. Our research points to a number of actionable takeaways for advisers that want to fine-tune their proposition and optimise their value-add for existing and potential clients.
Foremost, advisers should be sure to highlight the emotional value they can add. As our research showed, this is the top differentiator for human advisers. So, you might want to consider if you effectively convey your long-term commitment to partner with clients in helping them achieve their financial and life goals? If not, perhaps the marketing or other aspects of the business are in line for a review. Upskilling on ‘soft skills’ might also be appropriate individually or as a team.
Advisers can also thoughtfully review their existing client-acquisition and onboarding processes, with an eye toward attracting robo-advised investors who are willing to switch to a human adviser. Robo-advice users expect a friction-free experience. Make the business visible and easy to find so that potential clients can learn about the benefits of partnering with a trusted adviser.
Referring back to our list on investor preferences, advisers might want to check how the business is aligned with them. It might be helpful to inventory all of the services and activities you perform on behalf of clients.
Ultimately, advisers should align their resources to most appropriately fit the business tasks where investors perceive they provide the greatest value. In other words, are the people in your business aligned to the emotional and financial outcome value tasks that investors prefer to receive from a human? Is technology assigned to the portfolio tasks that can be automated? If not, it might be time to investigate tools that can improve efficiency and deliver maximum value to clients.
Read the full report for greater detail around which tasks and services investors tend to prefer to be delivered by a human or robo adviser.
1 Portfolio value measured on portfolio management activities, such as asset allocation, diversification, rebalancing and performance; financial value measured on financial planning, including establishing goals, saving and spending strategies, debt management, retirement and estate planning; and emotional value measured through outcomes including trust and confidence in your adviser, peace of mind that you will achieve your goals, and assurance in times of market volatility.
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