Investors’ loyalty to human advisors is not only enduring, it trumps any allegiance to digital advice, a Vanguard survey of 1,500 investors with at least $100,000 in investable assets found.
In fact, more than 90% of human-advised clients say they would not consider switching to a digital advisor, while 88% of robo-advised clients would consider switching to a human advisor in the future, according to the survey.
After numerous headlines about the threat that robo-advisors pose, the report should be gratifying to advisors. In fact, digital investors may be a goldmine of potential new clients for them, according to Vanguard.
“Robo-advised clients could represent an untapped and under-targeted market to convert to human advisors, especially as their needs become more complex,” said the survey’s authors, Vanguard behavioral economist Paulo Costa and Jane Henshaw, head of the company’s digital research.
The financial gain for investors using human advisors is also immense, they said. “Investors using human advisors estimate being $160,000 closer to achieving their financial goals. Three times as many investors report having strong peace of mind when working with a human advisor as compared to going it alone,” Costa and Henshaw said.
While some advisors have worried that technology and the significant uptick in digital advice offerings may cannibalize their client base, that hasn’t happened, Vanguard found. In fact, 93% of investors who already use a human advisor reported they would choose a service that includes a human advisor in the future.
While the authors said they were concerned about confirmation bias—with investors validating the choice they had already made—robo-advised investors did not show the same loyalty.
“When we asked current robo-advised clients about their future preference, we find that the same loyalty does not hold: 88% say they would be willing or extremely willing to work with a human advisor in the future,” Costa and Henshaw said.
The perceived value of human advice is ranked higher by investors and should not be underestimated, Vanguard found.
“Regardless of the method of delivery, investors believe advice provides higher incremental portfolio value than going it alone. The perceived value-add to annual performance was 5% for human advice and 3% for digital-only advice,” the authors said.
Advisors should take note, however, that digital advice also serves very specific purposes for investors who use it, Vanguard said. The study found that investors who use digital advice prefer it for certain portfolio management services such as diversification and tax optimization.
“Across the board, clients suggest that human advisors should consider automating their portfolio management services, leveraging technology to scale their business while strengthening their uniquely human value,” Costa and Henshaw wrote.