Want Wealthy Millennial Clients? Here’s What They Really Want
Millennials with assets greater than $100,000 use automated advisors seven times more than any other generation with the same asset base, a Hearts and Wallets national survey of more than 5000 households shows. And that number will increase among millennials, if not other age demographics too, sources say, adding that if advisors are looking to make headway in the demographic, they’d better get a robo.
Many advisors believe wealthier clients are less likely to use a robo because advice needs increase with wealth, Gauthier Vincent, lead management consulting partner of Deloitte says. “Five years ago, automated advisors were not providing those complicated advice needs.” But this is old news, he says. Back then, automated advisors calculated portfolios by asking investors what they wanted and what their risk tolerance was. But “automation in advice is [now] way better than it was five years ago,” he claims.
“Now I see digital solutions out there providing complex solutions around goals. It gets into all the typical financial planning stuff but through a digital interface,” he says.
In the Hearts & Wallets study, 11% of surveyed millennials say robo advisors are their primary source of investing knowledge — a 3% increase from last year. And from that cohort, 22% with assets between $500,000 and $2 million primarily rely on robos. Gen X and boomer investors of the same asset base are invested with robo advisors at 10% and 3% rates, respectively.
That trend also extends to millennials with between $100,000 and $500,000 in assets. One-fifth of millennials from that group primarily use robo advisors. User rates among Gen X and boomer investors in the same income brackets were 9% and 2%, respectively.
That millennials are more likely to use automated advisors is not a surprise to many advisors.
“Young people embrace new things more than older people do. That’s life in general,” Laura Varas, founder and CEO of Hearts & Wallets, says. But the depths of usage among high net worth millennials may cause some advisors to rethink their client base, she infers.
What may also be surprising to some is that millennials do not seem to be turning to automated advisors because of any advice price sensitivity, Varas says. Millennials — including wealthier millennials — just think “people are smarter when they are harnessing machines and there is something in the cost proposition of having a computer help you as a portfolio manager,” she says.
But other industry experts disagree.
“I think there are some misunderstandings in the industry,” Chris Jones, Edelman Financial Engines’ chief investment officer and EVP of investment management, says about robos and millennials. “The presumption is that young people are more technologically-savvy and comfortable with the digital experience. And at a high level that is true,” he says. But “there is an important correlation between wealth and age,” Jones insists. At the $25,000 asset level they may be more comfortable with the digital experience, he says. “But they don’t see incredible risk. The fallacy is to assume a 30-year-old with more assets is going to stick with that program forever.”
Companies solely offering a robo proposition “are not meeting that trust barrier,” Jones adds. "They are not getting over the hump of having investors say, ‘This is who I can trust with my entire financial life,’" he says.
“At Edelman Financial Engines we are investing tens of millions of dollars in our digital experience. But to say that only machines are going to be able to offer a compelling client experience is not the case,” he says. In fact, Jones claims “the current group of robos you read about are not generating the kind of revenue they need to be long-term contenders. And they may ultimately get acquired.”
Despite Jones' concerns, however, Vincent expects automated advisors to grow in popularity among older generations as well.
“People will become more and more comfortable using automated advice as it continues to improve dramatically with AI,” Vincent says. “The older groups are behind millennials, but they won’t ignore it.”