Since the spring of 2015, nearly all of the major U.S.-based hybrid brokerage firms have introduced proprietary digital advice solutions or announced plans to do so soon. Meanwhile, several of the largest full-service firms are partnering with digital advice providers like BlackRock/FutureAdvisor to provide either their clients or advisers access to automated advice platforms. The robo moment has clearly arrived.

As firms and advisers look to adopt and market automated digital advice services, it’s important that they understand who the potential early adopters are. To that end, we analyzed our proprietary 2016 investor survey data to create a profile for the type of investors that find robo advice appealing.

We analyzed our data based on respondents who indicated that they currently use or are very interested in using a robo adviser. We dubbed this group the 'robo embracers' and compared the results versus the rest of the investor sample. In doing so, several interesting differences emerge. Below we highlight some of the key characteristics defining the robo embracer segment.

NOT JUST MILLENNIALS

Our data shows that the concept of robo advice appeals more to the millennial generation relative to Gen X and baby boomers. Forty-six percent of millennial investors indicated they would consider using an automated online managed account service, compared to 36% of Gen Xers and 22% of baby boomers that said the same.

That said, we found the average age of the robo embracer investor segment is 44 years old, suggesting these services appeal to more than just young people. It’s true that robo embracers are younger than the rest of our survey respondents, the average age of which is 59. But their average age of 44 puts them firmly in the Gen X demographic and dispels the notion that only twenty-somethings find appeal in digital advice solutions.

ASSETS SURPRISE

We collected data on respondents’ total liquid household assets held at financial institutions and total annual household income. When we compared the data for robo embracers relative to the rest of the investor population, a clear trend emerged: as wealth increases, usage of and interest in digital advice decreases.

While the data supports the idea that digital advice does not yet have a strong appeal to wealthy investors, it’s wrong to assume robo embracers don’t have assets to invest. As the chart below shows, 65% of robo embracers reported that they have over $100,000 in liquid household assets, while 15% said they have $500,000 or more. Financial services firms interested in pursuing a digital advice strategy should be encouraged by these figures.

MORE DIVERSITY

Robo embracers are more diverse in terms of gender and race relative to the general investing population, indicating a clear opportunity for digital advice providers to reach out to otherwise under-served population segments.

Specifically, we found that 45% of robo embracers are female, compared to 32% for the rest of the investor sample, a notable percentage point difference. In theory, digital advice can help firms make in-roads with the younger female market segment without necessarily cannibalizing their existing business.

Just as robo embracers were more likely to be female than the general investing population, investors interested in digital advice also appeared to be more racially diverse. Seventy-five percent of robo embracers in our survey identify themselves as white, versus 88% of the rest of the sample.

This 13 percentage point difference is due to high interest in or use of digital advice by Asian and Hispanic investors. As many as 12% of investors interested in digital advice identify as Asian, versus only 6% of the rest of the population. The gap is even bigger with the Hispanic investor population, where we observed a 12% representation for robo embracers, versus 2% for the rest of the sample.

DIFFERENT INVESTING HABITS

Another difference we observed between robo embracers and the rest of the population is that the former group wants greater access to education and planning tools. The data also shows that robo embracers desire modern technology and the ability to manage their accounts via a mobile device.

Most digital advice startups offer platforms that are limited in capabilities and content relative to established brokerage firms’ typically feature-rich websites. This may represent a competitive advantage for incumbent firms moving forward.

As financial services firms look to build and expand their digital advice platforms, they should keep robo embracers’ key characteristics in mind.

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Sean McDermott

Sean McDermott

Sean McDermott is an analyst with Corporate Insight.