Robo-advice on the rise, but humans aren't going anywhere

In the US, the number of Baby Boomers using a robo-adviser rose from 7.2 per cent in 2019 to 2020, while 16.4 per cent of Gen Z are now using robo-advisers compared with 13.6 per cent in 2019.

“The COVID-19 pandemic has put the spotlight on all things digital,” said Sergel Woldemichael, wealth management analyst at GlobalData.

“For example, Wealthfront saw account openings rose 68 per cent during the crisis, while, from a returns perspective, Wealthsimple’s mutual funds have outperformed traditional Canadian funds.

“Meanwhile, traditional players are seeing significant reductions in assets under management and are playing catch-up in terms of utilising technology to keep their business alive.”

GlobalData believes the uptake of digital investment platforms is being driven in part by lockdown measures, but that continued volatility in financial markets mean human advisers will continue to be in high demand and that robo-advisers should incorporate a “human element” into their proposition in order to encourage investor retention.

“Lockdown measures have accelerated the wealth management industry’s shift to digital, much to the benefit of robo-advice – a concept that respects social distancing by nature,” Mr Woldemichael said.

“Although the full damage of the current global downturn is yet to be seen, if digital players can remain adaptive, keep in continuous communication with their clients and protect their clients’ wealth, then they should be able to pass their biggest test.”

In Australia, the use of robo-advisers is still trailing larger markets like the US, but has proved to be significantly more popular among women investors.

“Providers that intend to satisfy the strong latent demand for robo-advice among women investors will do well to understand the distinct needs and priorities of these investors,” said Investment Trends research director Recep Peker.

“When selecting a robo-advice provider, women online investors are more likely than men to prioritise the user interface (55 per cent v 49 per cent) and education initiatives (40 per cent v 34 per cent) but are less like to focus on fees (41 per cent v 53 per cent).”