Survey of 15 North American robo-advisor firms reveals shortfalls and service issues
Robo-advisors might be the wave of the future, but it seems they still have a few kinks to iron out.
Citing a study from Boston-based research firm Dalbar Inc, the Financial Post reports that robo firms’ struggle to swipe clients from more traditional investment companies may be “challenging.”
The research was conducted by having 45 “mystery shoppers” assess 15 North American robo services – five from the US, including Betterment and Vanguard, and ten from Canada. The resulting 126-page report focused on onboarding or sign-ups, which were primarily electronic. Other processes, such as ETF selection, monitoring, and reporting, were also electronic.
The study found different reasons why clients choose robos: affluent investors are concerned about fees, which the firms are able to address with an annual fee of 0.5% on top of modest fees from underlying low-cost ETFs. Meanwhile, mid-income investors (those who earn $60,000-$75,000 a year) chase convenience. Robo-advisors are especially popular among millennials who keep an eye on their investments through their smartphones.
Another finding was that becoming a client of a robo firm “isn’t as straightforward as it appears. The client has to do a lot of the work upfront, so there is a learning curve some will grasp and others may never.” Canadian firms devote more resources to client risk assessment compared to US firms; this means it takes four business days to set up a new account in Canada, as opposed to one to three days in the US.
Several of the study’s proponents encountered “serious technical and logistical challenges” in using live chat, noting that the feature “creates an expectation of ‘instant connection’ that many robo-advisors were unable to meet.”
Risk assessment is highly customized and personalized among robo firms, with no two Canadian companies emphasizing the same aspects of risk. Few robo-firms discuss cases when portfolios are rebalanced.
Another concern was raised by Aman Raina, investment coach with Toronto-based Sage Investors, who signed up with one local robo. While his experience was seamless compared with setting up a traditional trading account with a brokerage firm, he noted that regulators are “asking mutual funds and other wealth management firms to be transparent on performance. It seems robos are getting a pass.”
Overall, the piece concludes, the battle between robo-advisors and traditional firms may very well be decided based on service issues.
Related stories:
Is financial planning being sold short?
Next wave of robo-advisors pose little threat
Citing a study from Boston-based research firm Dalbar Inc, the Financial Post reports that robo firms’ struggle to swipe clients from more traditional investment companies may be “challenging.”
The research was conducted by having 45 “mystery shoppers” assess 15 North American robo services – five from the US, including Betterment and Vanguard, and ten from Canada. The resulting 126-page report focused on onboarding or sign-ups, which were primarily electronic. Other processes, such as ETF selection, monitoring, and reporting, were also electronic.
The study found different reasons why clients choose robos: affluent investors are concerned about fees, which the firms are able to address with an annual fee of 0.5% on top of modest fees from underlying low-cost ETFs. Meanwhile, mid-income investors (those who earn $60,000-$75,000 a year) chase convenience. Robo-advisors are especially popular among millennials who keep an eye on their investments through their smartphones.
Another finding was that becoming a client of a robo firm “isn’t as straightforward as it appears. The client has to do a lot of the work upfront, so there is a learning curve some will grasp and others may never.” Canadian firms devote more resources to client risk assessment compared to US firms; this means it takes four business days to set up a new account in Canada, as opposed to one to three days in the US.
Several of the study’s proponents encountered “serious technical and logistical challenges” in using live chat, noting that the feature “creates an expectation of ‘instant connection’ that many robo-advisors were unable to meet.”
Risk assessment is highly customized and personalized among robo firms, with no two Canadian companies emphasizing the same aspects of risk. Few robo-firms discuss cases when portfolios are rebalanced.
Another concern was raised by Aman Raina, investment coach with Toronto-based Sage Investors, who signed up with one local robo. While his experience was seamless compared with setting up a traditional trading account with a brokerage firm, he noted that regulators are “asking mutual funds and other wealth management firms to be transparent on performance. It seems robos are getting a pass.”
Overall, the piece concludes, the battle between robo-advisors and traditional firms may very well be decided based on service issues.
Related stories:
Is financial planning being sold short?
Next wave of robo-advisors pose little threat
