The future of robo-advice is human

Digital wealth management is likely to combine automation and human advice.

Digital wealth management is likely to combine automation and human advice. 

When Betterment decided to offer its clients access to a human financial advisor, it marked a growing trend of robo-advice platforms adding a human touch element.

Automated wealth platforms or robo-advice is not likely to find its success by just digitalising its services, says Thomas Davenport, a professor of information technology and management at Babson College. The future lies in a hybrid model that uses the efficiency of big data with the softness of personalised human advice.

“My guess is eventually, almost all of the robo only offerings will eventually offer some degree of human experience,” he said.

Research seems to support his theory. Around 60 per cent of consumers would rather have a live person in charge of their finances instead of relying on automated technology, according to a survey from Legg Mason Asset Management.

Other traditional wealth managers are experimenting with how to add automation to their services. In May, Morgan Stanley launched a machine-learning algorithm among 16,000 of its financial advisers to help them make decisions on trades and other routine tasks.

While not all digital offerings will be as complex as the Morgan Stanley algorithms, automated technology will provide a balance between human advice and the digital world, says Davenport.

While many so-called start-up robo platforms like Nutmeg or Betterment target millennials, it’s the older generation that is actually embracing digital technology, he says. Over 80 per cent of Vanguard’s robo-advice platform in the US are over the age of 50, he said.

“It’s a long way to prosperity” if millennials are the target audience of these new technologies, he says. While younger generations will accumulate money over time, it’s people closer to retirement age who tend to save and invest, more.

As these investment platforms evolve, it’s likely the name could change as well. Many firms dislike the term robo-advice, as it does not convey the varying types of technology offered, says Davenport.

“Nobody in the industry seems to like the name robo even though everyone seems to use it,” he said. “I just think [for some companies] robotics sounds overly structured, not that intelligent, doing the same thing over and over again, so they’d like to think that their systems are capable of more then that.”