Millennials Still Gravitate Toward Human Advisors over Robos: Survey

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Millennials have been accused of killing everything from department stores to golf, but so far the financial advice industry is holding on among the 18- to 34-year old demographic, according to a recent study.

More than 46% of respondents in a survey of 502 millennial investors saving for retirement said they had sought advice from a human advisor, according to LendEDU, a student loan refinancing company. That is almost double the 24.3% who said they had used a robo-advisor either in addition to a human advisor or exclusively, according to the survey, which was released September 19.

“It was quite interesting to discover that traditional advisors are nearly two-times more prevalent amongst millennials than robo-advisors,” said Mike Brown, a researcher for LendEDU, in the survey. He said he expected the robo-advisors to rank higher in part because of the ease of signing up compared to hiring a financial advisor.  

Part of the issue, to be sure, is that robo advice is relatively new to the market. The survey did not track the rate of growth for millennials but said more than 61% of those who have not used a robo-advisor have never heard of them.

But younger investors also showed that they felt human advisors would be better equipped to handle challenges, such as a sudden drop in the value of their investments, according to LendEDU. And 70% still thought that human advisors could get them a better return on their investments.

That confirms that the likely place for the next generation of investors to turn is a combination of human and ‘robo’ advice, according to Joe Ziemer, a spokesman for ‘robo’ advisor Betterment. The company manages manages over $10 billion in client assets, according to its most recent ADV filing from this month, and was recently valued at $700 million.

“It is not a zero sum game, and it is not a “robo” vs. human battle,” Ziemer said in an email. “There is a common misconception about robo advisors that there are no humans involved.”

Betterment has 22 employees performing investment advisory functions and 12 registered brokers, according to its ADV. In addition, it markets its platform to registered investment advisers, who then can charge a fee to offer it to their own clients or direct clients to Betterment for free.

“We have advisors in house and hundreds of RIA firms that use our technology to manage their clients’ wealth,” Ziemer said. “Whether consumers want to use a digital-only option, or have the ability to work with a dedicated financial advisor, we’re able to meet their needs.”

By 2020, robo-advisors are expected to manage $8 trillion in assets under management, according to Business Insider. That’s due in part to the ease at which the larger players such as Vanguard, Schwab, and Fidelity can convert call center or self-directed clients to their automated platforms.

Other “hybrid” robos offer similar options, such as Vanguard’s Personal Advisor Services, which pairs clients with at least $50,000 to invest with a CFP-licensed advisor for a cost of 30 basis points.