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 out SmartAsset’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 platforms recently 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 out SmartAsset’s SmartAdvisor platform. We match certified financial advisors with right-fit clients across the U.S.
- Expand your radius. SmartAsset’s recent survey shows 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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