Robo-Advisors 'All The Rage' But Boomers Sticking With Humans

Financial Advisor Explaining Investment Plans To Senior Couple.

Are baby boomers trusting their financial futures to a robot? The recent growth of online financial advice coming from robo-advisors (that provide portfolio management with minimal human intervention) appears to be the next big thing in investing.  According to a recent research report from A.T. Kearney, robo-advisors will control in excess of $2 trillion in assets by 2020.

However, despite the growing popularity of online financial advice from robo-advisors, personal relationships with human advisors remain important to baby boomers based on the recent Generations Apart study from Allianz Life Insurance Company of North America (Allianz Life®) on how baby boomers and Generation Xers  are approaching their financial futures.

Allianz Life Vice President of Consumer Insights Katie Libbe explained to what you need to know about these “on-line” advisors and what impact this automated option  is having on the traditional financial industry.

Boomer:  What are robo-advisors?

Libbe:  Robo-advisors refer to online wealth management services (performed via algorithms) that people can use to get help with asset allocation and accumulation without involving a human financial professional. These services are becoming increasingly popular as more are being introduced to the marketplace and the technology is becoming more robust. These services have their limitations, however, as they lack the ability to develop detailed financial plans that can address specific, changing needs that face boomers as they plan for retirement.

Boomer:  Can computers replace human financial advisors and give sound financial advice?

Libbe:  While robo-advisors can help people determine where to put their money and how to diversify their portfolios, they can't provide what we typically think of as "advice and guidance." This is significant because boomers still find great value when working with an actual person while dealing with financial and retirement planning, and they don't completely trust online resources. In our recent Generations Apart study, more than seven in 10 (72%) boomers said they “don’t really trust online advice, finding personal relationships more important.”

Furthermore, more than three-quarters (78%) believe “there’s so much selling online that it’s hard to trust the financial advice.” While many boomers have some interest in some of the services a robo-advisor could provide, the things they find most important would be difficult to replicate without human interaction.

Boomer:  What types of financial planning services are boomers most interested in?

Libbe:  According to our survey,  the most valuable things that boomers said a financial advisor currently does or could do for them include: “helping me plan, set and achieve long-term financial goals”; making sure I have enough money to last as long as I live; and helping me understand the big picture for my money (spending, saving, and retirement).” This is the type of advice and financial coaching that a financial advisor can provide only after spending a significant amount of time with their client to determine that client's goals, both broad and specific, discuss their risk tolerance, and understand everything necessary to provide the best financial strategy for that individual.

Boomer:  What are the fees involved as compared to financial advisor fees?

Libbe:  Fees with robo-advisors are typically less than fees with traditional financial advisors -- but it all depends on what the client is expecting to get for their money. If someone simply wants help with ideas on where to put their money, a lower-cost robo-advisor can be a useful option. But if they want more holistic advice and are willing to pay a higher fee, a human advisor is probably a better choice. In the case of boomers, it's clear that they still see the value of working with a trusted advisor to help them plan for retirement and shape their financial future.