By Paulo Costa, behavioural economist, Ph.D., Investment Strategy Group, Vanguard

As digital ‘robo-advice’ offerings have expanded in scope and availability, questions have arisen about the future of traditional advice given by humans. Will digital advice take over?

Our research, conducted in the US, finds that 90% of the 1,175 human-advised clients we surveyed would not, in fact, consider switching to digital advisers, while 88% of the 135 robo-advised clients we asked would contemplate moving to a human adviser in the future.

Both human- and robo-advised clients perceive that they receive value from their adviser, while the perceived value delivered by human advisers engenders greater loyalty compared to that of robo-advice. In this article, we share some of the key findings of the research. A second article will follow next week, in which we will outline the perceived emotional and financial value delivered by human and robo advisers, as well as the the practical implications for advisers and their businesses.

We asked 1,500 advised clients in the US about loyalty and perceptions regarding both types of financial advice.

Among our findings:

  • Advice adds value across the board: Regardless of the method of delivery, investors believe advice provides substantially higher incremental portfolio value versus ‘going it alone.’ The perceived value-add to annual performance was 5 percentage points (pp) for human advice and 3pp for digital-only advice.
  • Preference for financial advisers is enduring: While more than 90% of human-advised clients say they would not consider switching to a digital service, 88% of robo-advised clients would consider switching to a human adviser in the future. However, time, willingness and ability to manage investments seem to play a critical role in determining the choice of advice delivery.

Quantifying how investors value advice

Clearly, investors want financial advice and find it valuable. Our survey asked investors to estimate their annual portfolio returns achieved with whichever mode of financial advice they used. It then asked them to estimate what they thought their returns would be over a three-year period without the assistance of their advice service. 

Individuals working with human advisers estimated that on an annualised basis, they achieved a 15% average return with the help of their adviser, and estimated they would have seen only a 10% return if they had been unadvised—making a perceived value-add to annual performance of 5pp.

Those with digital-only advice reported perceived average portfolio returns of 24% using their digital advice service. They estimated their return would have been 21% if they did not use a digital adviser—making a perceived value-add to annual performance of 3pp. 

Investors believe human and digital advisers provide substantial portfolio value

Sources: Vanguard and Escalent, 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?”

Human advisers hold an edge

While the advice landscape is evolving with the breadth and depth of digital offerings becoming available, our research indicates investors maintain significant loyalty to human advisers.

Survey participants were asked, "If you had to leave your current [human] adviser today, what type of advising relationship would you search for in the future?"

For investors that already use a human adviser, 93% said they would choose an advice service that includes a human adviser in the future. Despite the common headlines about technology replacing humans, our data suggests that investors have strong loyalty to keeping a human financial adviser.

Investors with a human adviser not likely to switch to robo-only

Sources: Vanguard and Escalent, 2021.

Note: The sample in this figure includes all responding investors who only have human advisers (1,175 in total). Participants were asked: ‘if you had to leave your current [human] adviser today, what type of advising relationship would you search for in the future?'

Conversely, such loyalty did not exist when it came to digital-advised investors presented with the potential opportunity to hire a human replacement. When we asked current robo-advised clients about their future preference for advice delivery, 88% of those clients said they would be willing or extremely willing to work with a human adviser in the future. 

Digital-advised investors are willing to switch to human advice

Respondents were asked, "on a scale of one to seven, how willing would you be to work with a human financial adviser in the future?"

Sources: Vanguard and Escalent, 2021.

Note: The sample in this figure includes all responding investors who only have digital advisers (135 in total).

We believe this has strong business-development implications for human advisers: that robo-advised clients could represent an untapped and under-targeted market to convert for human advisers, especially as those investors’ needs become more complex.

Next week we will publish a second article looking at the perceived emotional and financial value received from human and robo-advisers, as well as how advisers can benefit from the rise of robo-advice.

To read the full report, click here.

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