As volatility spikes amid the Coronavirus pandemic, a new survey confirms that most investors prefer the comfort of human advisors versus a robo-advisor to manage their portfolios.
Given the option, 84% of survey respondents would rather work with a human financial advisor to invest their money compared with 16% who would prefer to use a robo-advisor, according to NerdWallet.
Respondents were asked how they manage their investments, how they feel about using human financial advisors and/or robo-advisors, and what concerns they have about using a robo-advisor. Among the key findings, 44% of investors use a human financial advisor to manage their investment accounts, while 15% say they use a robo-advisor to manage them.
One finding is that many are not familiar with how robo-advisors work. Nearly two-thirds of respondents (64%) say they don’t fully understand all the advantages and disadvantages of working with a robo-advisor versus a human financial advisor.
Human contact appears to be a sticking point for those who don’t use robo-advisors, the survey notes. Among respondents who don’t use a robo-advisor, 51% say they don’t because they want the ability to communicate with a live person, and 31% say it’s because robo-advisors don’t consider individual life situations.
Meanwhile, 66% of the investors in the survey who use a human financial advisor to manage their investments say they do so because they want to be able to discuss their investments with an actual person.
Too Expensive?
According to NerdWallet, nearly two-thirds of U.S. adults (65%) have investment accounts, such as 401(k)s (39%), IRAs (33%) and brokerage accounts (28%). On average, these respondents have $368,619 invested, but nearly half (47%) have less than $50,000 invested.
More than half of investors with an annual household income of $100,000 or more (51%) use a human advisor to manage their investments, compared with a third of those with an annual household income of less than $50,000 (33%), according to the survey.
Nearly two-thirds (65%) of those who don’t use a human advisor to manage their investments say they would hire one to manage them if they could afford it. Broken down further, 35% don’t think they can afford to have a human advisor to manage all their investments and another 25% aren’t sure whether they can.
“Online financial planning services tend to be a less-expensive way to access a human advisor, as advisor meetings are done virtually over phone or video conference,” explains Arielle O’Shea, NerdWallet’s investing and retirement specialist. “As with a traditional advisor, the best online planning services offer investing and financial planning advice tailored to you specifically.”
Of those who use a robo-advisor, 60% say they use them because they’re easy to use, 56% say they’re cost-effective and 44% say it’s because there’s a low barrier to entry, according to the survey.
There may be a perception issue to overcome with robo-advisors, however. Nearly three out of four respondents (74%) think using a human financial advisor would be the best way to get the highest return on an investment. The study further notes that 51% of respondents who use a human advisor say they feel very confident about the growth of those investments, while only 34% of those who use robo-advisors feel very confident about their investment growth. But looking at those who say they were “very confident or somewhat confident,” the numbers are more even, with 96% for those who use a human advisor and 94% among those who use a robo-advisor.
“Robo-advisors aren’t just for investors with smaller balances—they can be a good fit for anyone who wants to take a hands-off approach to managing their investments,” O’Shea further notes.
The survey was conducted online by The Harris Poll on behalf of NerdWallet from Jan. 22-24, 2020, among 2,016 U.S. adults, including 1,213 who have investment accounts.
