By Daniel Lanyon on Wednesday 1 February 2017
Millenials are the past not the future growth engine for robo-advice firms who should instead be targeting an older and wealthier age group.
Generation X investors are the key to future growth in automated investment advice, according to data from Cogent Reports.
Robo-advisors are online wealth management services that provide automated, algorithm-based portfolio management without the need for human financial planners. With many offering largely exchange-traded fund (ETF)-based portfolios, they often have lower fees than actively managed portfolios and have often been linked to price-conscious and digitally savvy younger investors.
The firm’s recent research suggests affluent Americans between the ages of 35 and 51 now represent 40% of robo-advisor users, up from 31% over the past year.
Importantly, the next wave of robo-adopters differs from the early adopters who were primarily Millennials – those currently 18-34 .
“While Millennials took the lead with early adoption of automated investment advice, now it’s Gen Xers that robo-advice providers should really focus on as they make up more than one-third (35%) of all affluent investors likely to consider robo-advice,” said Julia Johnston-Ketterer, senior product director at Market Strategies and author of the report.
“Gen Xers are not only increasing use of robo-advice, they are driving future development of automated investment advice offerings,” she added.
Affluent Generation X investors are less trusting of the financial services industry compared to Millennials, the report also found Furthermore, they are less likely to seek advice from an investment professional than those in other generations.
“Given that Gen Xers are more sceptical than their Millennial counterparts, likely robo-users in this generation are gravitating toward established brands with proven track records, such as Fidelity and Charles Schwab, more so than emerging providers for automated investment advice,” says Linda York, senior vice president at Market Strategies.
“Convincing Gen Xers of the value of financial advice from an objective, third-party source is the nut that robo-advisors, particularly lesser-known brands, need to crack.”