Very few customers are using the financial planning tools on direct-to-customer platforms, says Boston-based research firm Cerulli Associates. This lack of usage represents a growth opportunity for both platform developers and financial advice businesses alike, the research firm says.

In its report ‘The State of U.S. Retail and Institutional Asset Management 2018’, the firm says only 17% of all participants surveyed used direct-to-customer platforms to create financial plans.

Cerulli defines a direct-to-customer channel as any sale of investments to a retail investor client without the help of a traditional advisor. It also differentiates between the multiple offerings by certain wirehouses. For example, Bank of America’s Merrill Lynch Advisors is classified as an advisor platform while Merrill Edge is classified as a direct platform.

“Encouraging investors to use online planning tools is a prime opportunity for providers to help investors better understand their relative progress toward goals, while also uncovering unmet product needs,” says Scott Smith, director at Cerulli. “To boost user engagement, providers must consider making their planning suites as modular as possible, with frequent feedback to reward incremental progress.”

Viewing online accounts and trading online was the most frequent use of these direct platforms for more than half (56%) of the households surveyed by Cerulli. Linking to bank accounts and access to investment research tools followed next.

And this is where Cerulli believes direct platforms have an opportunity.

“The use of artificial intelligence technology to augment online support and chat features is a major opportunity for platform providers to increase customer satisfaction,” says Smith. “By logging users’ previous actions and stated goals, these tools will be better able to anticipate what answers investors seek and present product solutions even before investors know they want them.”

But some industry experts disagree.

Timothy Welsh, president of San Francisco-based consulting firm Nexus Strategy, believes while there is an upside to using these platforms, they have a limited role to play in broader financial planning and financial wellness.

“I think they can go to some extent in helping people with very basic planning questions, so maybe that sort of mass affluent, single income household that doesn’t have a lot of complex stuff,” says Welsh. “But I think once you get into the more complicated wealth situations, higher net worth, the robo can’t do it. Too many emotional issues, behavioral finance issues become involved that you need a person, a professional to be able to do that.”

Direct-to-consumer platforms accounted for close to $7 trillion in assets at the end of 2017, per Cerulli, and they are likely to approach $10 trillion by the end of 2022. The top four providers – Fidelity, Vanguard, Charles Schwab and TD Ameritrade/Scottrade – account for almost 84% of all these assets.

According to Cerulli, 37% of all households surveyed did business with such direct platforms. More than half (56%) of self-directed investors surveyed opted for the direct platforms. Almost a third of households headed by an investor under age 30, between 40–49, and age 70 or older have direct platforms as their primary investment vehicle accounting for most of their assets.

And while bank advisors, bank deposit and retirement plan channels see customer reliance peak and then wane with wealth accumulation, direct platforms see no change in investor preference.

Scott Smith

Almost a third of investors (31%) set up a direct account to try their own investment ideas, per the Cerulli report. Twenty-nine percent of respondents said the reason they opened a direct account was to invest for a specific goal – like retirement or education. More than a third of households (36%) headed by investors between the ages of 50 and 59 prefer to use direct accounts because they are less expensive than using a financial advisor.

“The segment of do-it-yourselfers has always believed that they can do it themselves. They don’t need to pay somebody. But the delegator – somebody who has substantial wealth – absolutely, they’re more than happy to pay,” says Welsh.