Few consumers use robo-advisors, but 63% of those who don’t use any advisor—heavily weighted toward millennials—said they would consider it, according to a recent survey by MagnifyMoney, a personal finance website.
The survey looked at nearly 1,600 American adults and found that 41% of respondents who had investments said they used an advisor, compared to just 1% who said they used a robo-advisor. The remaining 58% had no advisory relationship at all.
For respondents who didn’t currently have an advisor, millennials were the most open to using a robo-advisor (75%), followed by Gen Z (73%), Gen X (63%) and baby boomers (43%). The main reason many of these respondents gave for not having an advisor was the cost—44% said they thought a financial advisor would be too expensive. However, 80% also said they would consider a robo-advisor if they knew that service were less costly, the survey found.
Other reasons for not using a financial advisor included they manage their own investments (43%), they don’t feel they have enough assets yet (31%), they haven’t found an advisor they like (17%), they find free resources online (16%), and they don’t trust financial advisors (12%).
Respondents who did have an adviser were clear about why they value this relationship, and surprisingly racking up the best returns wasn’t at the top of the list. Instead, 65% said they need help with money management and savings, 49% want help saving for retirement, 47% want to discuss money goals and 45% want help managing investment risk. Just 43% said they have an advisor to get the best returns possible. Minimizing taxes (27%) and dealing with an inheritance or windfall (5%) ranked even lower.
Whether respondents had an advisor or not, one thing they did have in common was that the vast majority do not have a clear picture of how financial advisors structure their fees. Only 16% said they understood how advisors get paid.
Considering how much time and effort financial advisors put into being transparent about fees, that 16% may be a bit disheartening, but Matt Schulz, chief credit analyst at LendingTree, the parent company of MagnifyMoney, said that the disconnect may not be the fault of the advisory community.
“Some of it is just that Americans are not the greatest at diving into the fine print, whether it’s a credit card, or a gym membership or a financial advisor agreement. It’s not our favorite thing to do,” he said. “And that’s understandable The print is a mile long and people don’t want to take the time to go through the fine print even when it can be to their benefit. There’s that saying ‘What you don’t know can cost you.’”
Another explanation is that, while 84% of potential clients say they don’t understand how advisors get paid, it doesn’t mean they’re bothered by that.
“It might not matter to them a whole lot how the fees are structured,” Schulz said. “Maybe they think all advisors charge the same, or maybe they have enough money and they’re not worried about the fees in the long-term.”