How clients value human and robo advice differently

Register and watch our CPD webinar ‘How clients value human and robo advice differently’ for further insights from our research.

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  • Investors prefer human or digital delivery of advice depending on the task.
  • Almost 90% of robo-advised investors are willing to switch to a human adviser in future.
  • Human-advised investors perceive a greater portfolio value-add from their adviser compared to robo-advised investors.

 

Conventional wisdom might say the role of a human financial adviser is under threat from the growth of automated services, or robo advice, but this couldn’t be further from the truth according to Vanguard’s latest research around the value of advice. 

We surveyed more than 1,500 US investors with either a human or robo adviser to quantify investors’ views on the value of the services. The findings paint a varied picture of client preferences with useful insights for advisers keen to optimise their value-add for clients and ultimately strengthen and grow their business.

Most notably, the findings that 88% of robo-advised investors would be willing or extremely willing to switch to a human adviser in future, while 93% of human-advised investors would stick with human delivery, indicates significant business-development opportunities for human advisers.

We’ve distilled the main findings into six key takeaways for advisers:

1. Advice adds value across the board.

Regardless of the delivery method, investors believe that advice provides higher incremental portfolio value than going it alone.

Individuals working with human advisers estimated that on an annualised basis, they achieved a 15% average return with the help of their adviser compared with only a 10% return if they had been unadvised—making a perceived value-add to annual performance of 5 percentage points (pp). Those with robo-only advice reported perceived average portfolio returns of 24% service against only 21% if they did not use a digital adviser—meaning a perceived value-add to annual performance of 3 pp1

2. Advised clients believe they are closer to their financial goals.

Investors using human advisers estimate being $160,000 closer to achieving their financial goals. For robo-advised clients, the value is $50,0002.

3. Investors prefer human advice for emotional support.

Our research also found that investors prefer human rather than automated delivery for the ‘emotional’ elements of financial-planning services. This includes important criteria, such as:

  • Developing a personal connection and relationship with the investors: 76% preferred human delivery compared to 16% digital.
  • Being empathetic to the investor’s personal situation and needs: 75% preferred human delivery vs. 18% digital.
  • Ensuring that the investor feels listened to and understood: 73% preferred human delivery and 18% were in favour of digital delivery3.

4. Robo advice plays a crucial role.

While there are some specific services where investors prefer the human touch, there are others where investors prefer delivery to be digital or automated, such as portfolio management services, such as diversifying investments and efficiently managing taxes and capital gains.

5. Satisfaction is high in the industry.

The survey found that 84% of human-advised clients and 77% of robo-advised clients are satisfied with the advice they are receiving. The high levels of satisfaction further underlines the perceived value of advice for investors, while the gap between stated satisfaction for human- and robo-advised clients reinforces the notion that there is an opportunity for advisers to attract robo-advised investors.

6. Demographics are not important when considering relative preferences.

Contrary to popular belief, the survey did not find that millennials have distinct preferences that differ from other generations when it comes to automation of service.

We compared the preferences of respondents by age group, including ‘millennial’, ‘generation X’ and ‘baby boomer’ and found their responses to be highly correlated. In short, younger and older investors rank similarly regarding which services they prefer to be automated or delivered by a human4.

Overall, the research indicates investors prefer some tasks to be delivered by an adviser and other tasks to be automated.

Register for our next webinar, How clients value human and robo advice differently, for a deeper dive into the findings and the practical implications for advisers.

 

1 Sources: Vanguard, 2021. Notes: Respondents were asked, "In your experience with your human (or digital) adviser, what would you estimate your average annual investment returns to be in the past three years? If you have not had an adviser for three years, think about the relationship you have had with your adviser thus far." Respondents were also prompted to estimate their average annual investment return while working with their human (or digital) adviser. They were then told to imagine they did not have their adviser and instead managed their investments on their own. Given those circumstances, they were asked, “What would you imagine your average annual investment returns to be in the same period?”

2 Source: Vanguard, 2021. Notes: The figures are based on the sample of investors that responded to the questions: ‘what is your financial goal in terms of how much money you would like to have in your investment accounts?’; ‘How much progress have you made toward that goal (as a %)?’; and ‘How much progress do you think you would have made towards your goal without your adviser (as a %)?’. The median financial goal for human- and robo-advised clients is $1 million.

3 Source: Vanguard and Escalent, 2021. Notes: Based on responses from 1,518 clients. Investors were presented with 42 micro-interactions and asked to rate whether they preferred that service to be delivered by a human or a digital adviser. The rating were presented on an 11-point scale, where 0 meant ‘completely delivered by a human’ and 10 meant completely delivered by a digital service. Clients were considered to prefer human delivery if their rating was between 0 and 4 and digital delivery if their response was between 6 and 10. 

4 Source: Vanguard and Escalent, 2021. Notes: All 1,518 clients answered the question in which they were presented with four micro-interactions at a time, 12 times in different screens, and asked which they most preferred to be delivered by a human or digital service so that we could rank each micro-interaction as well as relative preferences by age group, including ‘millennial’, ‘gen X’ and ‘baby boomer’. The statistical technique used to calculate the rank and relative performance scores is called MaxDiff.

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