Socially Conscious Investment Practices - Part 1
In short, my research indicates that US-based users/investors are generally satisfied with their robo-advisers. In a study conducted by Investopedia and the Financial Planning Association (FPA), 75% of the 2,002 users surveyed indicated that they were most satisfied with the performance of their robo-advisers, followed by their transparency in fees. However, users were least satisfied with the tax loss harvesting capabilities, followed by their responsiveness to questions (both online and via call centers). Most users are uncomfortable with the idea of using robo-advisers during periods of extreme market volatility. Due to the novelty of robo-advisers, there is little academic research conducted on user experiences vis-a-vis robo-advisers. Below you will find a deep dive of my findings.
In 2016, Investopedia and the Finance Planning Association conducted a joint study involving 2,002 users of robo-advisers who were of legal age (21+) and were involved in household investment decisions. The study indicates that users of robo-advisers report fairly high rates of satisfaction. On a 5 point scale, 75% of survey respondents reported that they were 'satisfied' or 'very satisfied' with the performance of their robo-advisers. 74% of respondents reported similar satisfaction levels for fee transparency, with multiple platform accessibility (65%), investment options (64%) and rebalancing services (61%) trailing closely behind. In contrast, respondents were least satisfied with the responsiveness of their robo-advisers to questions, with only 49% and 48% of respondents reporting that were 'satisfied' or 'very satisfied' with their responsiveness to questions submitted online and via call centers, respectively. Survey respondents were least impressed with the tax loss harvesting capabilities of their robo-advisers (45%).
The Investopedia/Financial Planning Association survey results seem to corroborate the findings from other sources with regard to the importance of 'holistic experiential aspects' of robo-advisers and digital finance in general. Query responsiveness and tax planning activities require high levels of interaction and present technological capabilities as they are stand are not advanced enough to evaluate multiple nuances of an individual's financial life to produce a coherent strategy.
A 2017 journal article which studies the customer experience of digital finance in the UK and the Netherlands notes that companies that combine their digital offerings with existing offline personal advisory services (such as Vanguard and Schwab) perform much better and grow much faster than their other competitors in the market. This is because most of the advantages of using robo-advisers including lower costs, faster application processes and higher transparency are rooted in automation and therefore does not significantly improve customer experience. KPMG's study on the effectiveness of robo-advisers concurs with this finding, citing Vanguard's Personal Adviser Services (PAS) as a successful hybrid that has combined both 'high-tech' and 'high-touch'. The article also notes that at the time of publication, there are no other existing academic studies that analyze how the use of robo-advisers impacts user experience. After searching exhaustively through journal databases, it seems that the author's observation still holds.
It is noted that nearly half of all respondents (40%) in Investopedia and the Financial Planning Association's joint survey are 'uncomfortable' or 'very uncomfortable' with using robo-advisers during times of significant economic volatility. This may be associated with the need for human financial planners/advisors to navigate complex situations. In line with conventional tech adoption narratives, older investors tend to be the least aware regarding the existence of robo-advisers and are also least likely to use them. This is particularly true for investors older than 61. Millenials, on the other hand, are most likely to search for robo-advisers and use them.
In conclusion, the existing body of research shows that users in the US are most satisfied with the performance and fee transparency of robo-advisers and are least satisfied with matters concerning responsiveness to queries (both online and via call centers) and tax loss harvesting capabilities. This is because despite the fact that the advantages of using robo-advisers are rooted in their ability to automate certain processes, they are still unable to evaluate multiple nuances of an individual's financial life to produce a coherent strategy. A corollary to this is that users are also markedly uncomfortable with using robo-advisers during periods of high economic volatility due to this very reason. Due to the relative novelty of robo-advisers, academic research on the relationship between robo-advisers and user experience remain scant. Lastly, millenials are most likely to use robo-advisers in contrast to older investors (especially those above 61 years of age, who are also least likely to be aware of such services).