Why Wealthy Clients May Be Leaving Robo-Advisors for Human Advisors - SmartAsset (2024)

Why Wealthy Clients May Be Leaving Robo-Advisors for Human Advisors - SmartAsset (1)U.S. investors are turning away from robo-advisors, according to a recent report. After several successive years of increasing participation in digital platforms, U.S. usage declined substantially in 2022, according to Parameter Insights, a company providing data-driven research for wealth management businesses. High-net-worth investors may be migrating to traditional advisor channels with full-service financial planning, the report says. Here’s what advisors should know.

If you are looking to grow your financial advisory business, check outSmartAsset’s SmartAdvisor platform.

Digital Advisor Use Dropped in 2022

Net usage of digital advisors declined substantially in 2022, according to the September 2022 report. Overall, U.S. digital advisor use dropped from 27.7% in 2021 to 20.9% in 2022. That’s a fall of 24.5%.

High-net-worth investors exited robo-advisor arrangements at the highest rates. Here’s how the data broke down along asset levels:

  • $50,000 or less: A drop from 23.6% to 20.6% in 2022, which translates to a decrease of 3 percentage points.
  • $50,000 to $99,999: A loss from 39.3% in 2021 to 25% in 2022, or a decrease of 14.2 percentage points.
  • $100,000 or more: A decline from 37.3% in 2021 to 25% in 2022, or a decrease of 12.3 percentage points.
  • $500,000 or more: A fall from 38.3% in 2021 to 14.5% in 2022, which is decrease of 23.8 percentage points.

High-net-worth clients may be rediscovering old-school advisor relationships and human interactions. “These higher-net-worth customers have been targeted by traditional advisor channels and are being enticed with full-service financial planning,” the report says.

Additionally, younger investors held on to their digital advisors at higher levels than older investors did. And women were less likely to dump their digital advisor than men were.

The Look Ahead for Financial Advisors

Clients’ uptake of robo-advisor and do-it-yourself investment platformsrecently accompanied larger macroeconomic and market events.

In the wake of the COVID-19 pandemic, for example, investors socked government stimulus checks into self-directed platforms with zero-commission trading and online tools. The recent bull market may have also had investors feeling confident in their online trading skills.

But 2022 looks very different. Ongoing macroeconomic concerns and a stomach-churning bear market have some folks ducking for cover. “In the midst of significant market turmoil in 2022, many investors have cashed out or chosen to let their investments sit dormant while weathering the storm,” the Parameter Insights report says.

As markets continue to fall, however, the need for advice and quality investment management services increases. “Many who thought they could do it themselves have been quickly disabused of this notion in the face of significant downturns and market volatility,” the report states.

For banks with robo offerings, the economic climate may open a window to promote the value of their advisory services to current clients.

And for human advisors, especially those targeting high-net-worth investors, this may spell an opportunity to make the pitch for an old-school, human-led wealth management relationship.

Tips for Growing Your Financial Advisory Business

  • Let us be your organic growth partner.If you are looking to grow your financial advisory business, check outSmartAsset’s SmartAdvisor platform.We match certified financial advisors with right-fit clients across the U.S.
  • Expand your radius.SmartAsset’srecent surveyshows that many advisors expect to continue meeting with clients remotely following COVID-19. Consider broadening your search and working with investors who are more comfortable with holding virtual meetings or spacing out in-person meetings.

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Why Wealthy Clients May Be Leaving Robo-Advisors for Human Advisors - SmartAsset (2024)


Do rich people use robo-advisors? ›

Digital Advisor Use Dropped in 2022

High-net-worth investors exited robo-advisor arrangements at the highest rates. Here's how the data broke down along asset levels: $50,000 or less: A drop from 23.6% to 20.6% in 2022, which translates to a decrease of 3 percentage points.

What is the biggest downfall of robo-advisors? ›

Limited Flexibility. If you want to sell call options on an existing portfolio or buy individual stocks, most robo-advisors won't be able to help you.

What are 2 cons negatives to using a robo-advisor? ›

The generic cons of Robo Advisors are that they don't offer many options for investor flexibility. They tend to not follow traditional advisory services, since there is a lack of human interaction.

Do robo-advisors beat human advisors? ›

The type of advisor that is better for you depends on what your financial needs are. For core investing and planning advice, a robo-advisor is a great solution because it automates much of the work that a human advisor does. And it charges less for doing so – potential savings for you.

How do robo-advisors affect wealth management? ›

Robo-advisory combines advanced software algorithms, ML and AI, which can lead to better decision-making, providing critical investment advice and portfolio management services. Affordability: Devoid of human intervention, robo-advisors in India typically charge lower fees than traditional financial advisors.

What if Wealthfront goes out of business? ›

Your cash is insured by the Federal Deposit Insurance Corporation (FDIC). This coverage protects your cash in the event that a bank goes out of business. Wealthfront uses multiple partner banks to ensure FDIC coverage of up to $8 million for your cash deposits.

Can you lose money with robo-advisors? ›

Markets can be unpredictable, and no form of investing is immune to potential losses. Robo-advisors, like human advisors, cannot guarantee profits or protect entirely against losses, especially during market downturns—even with well-diversified portfolios.

Do robo-advisors outperform the S&P 500? ›

Do robo-advisors outperform the S&P 500? Robo-advisors can outperform the S&P 500 or they can underperform it. It depends on the timing and what they have you invested in. Many robo-advisors will put a percentage of your portfolio in an index fund or a variety of funds intended to track the S&P 500.

Can you trust robo-advisors? ›

While it's smart to be cautious when trusting others with your money, a robo-advisor may be just as safe as a human financial advisor. But investing always comes with the risk of losing money, and that's true whether you're investing on your own, hiring a financial advisor or using a robo-advisor.

How much would I need to save monthly to have $1 million when I retire? ›

Suppose you're starting from scratch and have no savings. You'd need to invest around $13,000 per month to save a million dollars in five years, assuming a 7% annual rate of return and 3% inflation rate. For a rate of return of 5%, you'd need to save around $14,700 per month.

What is the problem with robo-advisors? ›

The problem is that most robo-advisors do not offer comprehensive exposure to these assets. This means that investors must either open separate accounts elsewhere in order to gain exposure to these asset classes, or else capitulate to accepting a portfolio consisting only of stocks and bonds.

Should I use a robo-advisor or do it myself? ›

Doing it yourself can give you more control, flexibility, and customization over your investments, but it also requires more research, monitoring, and discipline. You should consider your goals, risk tolerance, and investment style before choosing between a robo-advisor or doing it yourself through an online broker.

Will financial advisors be replaced by robots? ›

While AI technology may be rapidly transforming the financial sector, it is highly unlikely that human financial advisors will become obsolete anytime soon. The future of this industry lies in a combination of AI-driven solutions and human expertise — the ideal blend of tech-powered precision and personalized advice.

What is the difference between a wealth advisor and a robo-advisor? ›

Unlike live financial advisors, robo-advisors use computer algorithms to manage investment portfolios and make investing decisions. They typically have lower minimum investment requirements than financial advisors, and they tend to be less expensive.

Why are more younger people using robo-advisors instead of human advisors? ›

Robo-advisors are believed to appeal more to younger people because this demographic tends to trust robots more and prefers doing everything online. Robo-advisors are also more accessible in terms of cost and the amount you can invest.

What financial advisors do rich people use? ›

Wealth advisors are a type of financial advisor who typically work with very wealthy clients and offer holistic financial planning, including services such as estate planning, tax help and legal guidance, in addition to investment management.

Do billionaires use financial advisors? ›

“If this is the case, the investment portfolio needs to take the operating business into consideration when decisions are being made for the investment portfolio.” Harding says billionaires seek advisors with whom they have a strong alignment and no conflicts of interest.

What percentage of people use robo-advisors? ›

Surprisingly, our survey found that just 16% said they use these digital wealth management platforms to build wealth for retirement, and 9% of respondents said they'd use a robo-advisor to build long-term wealth.

Who uses robo-advisors? ›

According to a Vanguard survey (2020), Millennials are twice as likely as older American investors to consider using a robo-advisor: together with Generation Z, they have grown up in a Tech-laden world and they are more likely to seek financial advice in the age of Covid-19 (the United States is by far the leading ...

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