Views on improving the integrity of global capital markets
21 April 2016

Survey: Ultra HNW, Institutional Clients Prefer Humans to Robo-Advisers

Posted In: Market Structure

The Joint Committee of the European Supervisory Authorities recently requested industry input on automation in financial advice to determine whether measures are needed to promote ‘the safety and soundness of markets and convergence in regulatory practice’.

To inform the policy debate, CFA Institute surveyed a sampling of our global membership for guidance. More than 20% of the survey pool responded (3,803 members) — nearly double the typical response rate. Members are clearly aware of the potential for automated financial advice tools to reshape the asset management sector. In particular, robo-advisers, rather than the in-vogue blockchain, are considered to have the greatest impact on the financial services industry in the short (one year) and medium term (five years).

An overwhelming majority of respondents, 70%, said mass affluent investors would be positively affected by automated financial advice tools in the form of reduced costs, improved access to advice, and improved product choices. Indeed, the Financial Conduct Authority in the UK is looking at robo-advisers to fill the ‘advice gap’ for the mass market caused by the unbundling of investment advice payments. Robo-advisers are truly a disruptive technology, in the strict sense of the word, as they are providing a low-end product that addresses nonconsumption (by mass affluent investors) of financial services.

Robo-Advising and the High-Net-Worth Investor

Sixty-seven percent of respondents thought that ‘other’ investors and high-net-worth individuals (41%) would benefit from automated financial advice tools as well. The higher the wealth, the more likely that respondents thought investors would not be affected by automated financial advice tools. This finding that automated financial tools will likely not replace engagement with human advisers for institutional investors and ultra-high-net-worth individuals is interesting. The implication is that the tailored nature of financial advice to these market segments is not as easily amenable to standardized automation tools typically provided by robo-advisers. These groups of investors, with large portfolios and potentially diverse and complex investment needs, are likely to continue to favour personalised, human advice.

Perhaps this is what the management industry hopes will be the case.

Respondents were divided about the impact of financial advice tools on market fraud/mis-selling and on the quality of service, with a roughly even split between respondents who believed that things would improve because of financial advice tools and those that thought this technology could make things worse. However, respondents made it clear that flaws in automated financial advice algorithms (the ‘black box’ problem) could be the biggest risk introduced by robo-advisers (46% of respondents, a plurality), followed by mis-selling (30%) and data protection concerns (12%).

Additionally, the survey addressed the impact of blockchain technology, the distributed ledger that underpins virtual currencies, and which is being explored by financial services firms. The survey revealed that CFA Institute members thought that clearing and settlement, alternative currencies, and commercial banking are the top 3 areas which will likely be most impacted by blockchain technology. News that Barclays is linking up with Circle Internet Financial to allow the digital currency company to move British pounds between users on the blockchain seems to back up these findings.

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About the Author(s)
Sviatoslav Rosov, PhD, CFA

Sviatoslav Rosov, PhD, CFA, is Director, Capital Markets Policy EMEA at CFA Institute. He is responsible for developing research projects, policy papers, articles, and regulatory consultations that advance CFA Institute policy positions, focusing on market structure and wider financial market integrity issues.

1 thought on “Survey: Ultra HNW, Institutional Clients Prefer Humans to Robo-Advisers”

  1. Martin Raab says:

    The quintessence is simple: Sophisticated clients desire holistic solutions for their wealth management– it is not just about clicking and dragging charts on a cool website. Robo-Advice is good for retail and small amounts, nothing else. However, ETFs and passive investing will become a corner stone in HNWI portfolios…uncorrelated by Robos and Blockchain.

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