HBW Advises Continued Investor Caution With Projected Worldwide Hybrid Robo-Advisor AUM Of $3.7 Trillion by 2020

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Worldwide assets under management for hybrid robo-advisors are projected to grow to $3.7 trillion by 2020, $16.3 trillion by 2025, as acceptance of robo-advisors grows. But HBW Partners warns that they can be a double-edged sword.

When Betterment introduced its first robo-advisor in 2008 during the terrifying beginnings of the Great Recession, it was meant to empower investors by making an existing wealth-management technology widely available to the public. Although “pure” robo-advisors (totally automated, DIY) are predicted to be managing 1.6 % of global wealth by 2025, a much more significant 10%—$16.3 trillion—is expected to be managed by “hybrid” advisors.(1) “Investors know they are planning for an uncertain future. They want to be able to use new technology and follow their instincts, but the best strategies will likely be based on expert advice and personalized professional planning,” said Tom Streiff, President of TFS Resources and Special Consultant to the CEO at HBW.

The reservations concerning a robo-advisor are due to its tendency to be a one-size-fits-all approach. Based on the profile established by an online survey, an individual investor becomes a member of a large demographic group which is given investment advice based on an algorithm. As an example, robo-advisor Vanguard manages $65 billion for its users—half of whom are over age 65, a distinct demographic.

“The risk with billions in assets going into the same, or similar investments, is that millions of investors all get the same results. This is generally okay when the performance is good, but when performance is down, it’s human nature for investors to sell. Everyone selling the same investments at the same time creates a cascading effect,” Streiff warned.

Despite the recent proliferation of large players using these services (now including Bank of America Merrill Lynch, Fidelity Investments, Raymond James and Charles Schwab) in an effort to reach millennials, only 4% of mass affluent and high-net-worth investors—a demographic which understands and relies heavily on sophisticated technology—use an automated or robo-advice investing tool, and 67% of them view traditional holistic planning capabilities as the deciding factor in whether to use an advisor(2).

An experienced investor’s long-term relationship with a financial advisor is based on mutual trust, and includes an understanding of the client’s unique family concerns as well as personal and professional goals. “The relationship’s value increases over time,” said Streiff. “While the current robo technology can be a useful support tool at times, when facing a critical investment choice based on a family crisis or a sudden downturn or market correction, the well-informed investor wants to avoid disastrous results by consulting a professional advisor.”

Across the entire spectrum of investors, 38% say they would willingly pay more for access to a person for help with financial services, and 45% say they would not be willing to give up live customer service in exchange for paying lower fees.(3)
Any advantage a DIY robo-advisor might provide—whether it is 24/7 availability, a low annual fee, a minimal account balance, etc.—has been created by removing a live financial advisor from the equation. This cost consciousness can result in classic ‘penny wise, pound foolish’ thinking. Even in some hybrid service scenarios where advice can be sought out, the client/advisor ratio can be as high as one advisor for every 10,000 investors(2).

About HBW Partners

Established in 1991, HBW Partners is a multi-faceted financial services organization offering the resources of a large company, while focusing on the personal touch of a small firm. They partner with honest, caring and motivated individuals who desire the independence to run their own business, while emphasizing long-term relationships that enable their advisors to provide many of the best possible outcomes for their clients.

HBW Partners empowers advisors with innovative products and optimal solutions to help their clients at every stage of life; whether it is professionally managed money, packaged products, tax planning, insurance, annuities or trusts.

Through partnerships with many significant providers across all aspects of the industry, they have made available state-of-the-art technology such as facial recognition tools, financial planning software, client acquisition programs, and business planning tools to enhance the client experience, manage risk and increase productivity.

Their motto is “Character and Quality Above All”. Autonomy, Mastery and Purpose with Trust is the basis for everything they do. For more information visit http://www.hbwpartners.com/.

(1)    MyPrivateBanking. “Robo Advisors vs. Human Financial Advisors: Why Not Both?” Business Insider, Business Insider, 21 Nov. 2017.
(2)    David Lyon | Nov 09, 2017. “Three Things an Advisor Does That a Robo Can't.” Wealth Management, 9 Nov. 2017.
(3)    Consumers Resist Automated Investment Advisors, Seek Balance with Human Touch – GfK Study.” GfK United States, 13 Jan. 2017.

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Karla Jo Helms
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