Will Robots Replace Human Financial Advisors?

Robo-advisors have had a meteoric rise in popularity since their debut in 2008 thanks to the support from millennials and Gen Z. Today, Robo-advisors manage $460 billion, with some analysts predicting it will become a $1.2 trillion industry by 2024.

Watch the video to find out why some investors believe it will never replace traditional human financial.

Since their debut in 2008, robo-advisors have had a meteoric rise in popularity. In 2020, they managed $460 billion, a 30% increase compared with 2019. Some analysts predict robo-advising will become a $1.2 trillion industry by 2024.

"Investors historically have had two options when it comes to managing their investments. They could do it themselves through something like an online broker or you can work with a financial advisor," explained Brian Concannon, head of Digital Advisor at Vanguard. "Now, with the advent of robo-advisors, there's a third option, and that's to merge the benefits of professional money management and advice with the convenience of an all-digital application."

Robo-advisors' sudden rise to prominence was made possible due to massive interest and support from millennials and Gen Z. According to a recent survey by Vanguard, millennials were twice as likely as young baby boomers to consider using a robo-advisor for investments.

"I believe that there are things that technology or algorithms can do better than humans can," said Taylor Crane, a robo-advisor customer. "And I have no problem trusting a software to do that."

Skeptics do not expect robo-advisors to replace human advisors entirely in the near future.

"Clearly, there's always going to be a human element that's missing," said Jason Snipe, chief investment officer at Odyssey Capital Advisors. "My problem always will be the emotional response. Take a situation like last year when we're going through Covid-19 and markets are moving a lot, dramatically. ... You can't talk to the technology, right?"

To combat this, many robo-advisor companies including Betterment and Vanguard began providing the option of hybrid services that combine both human and digital advice.

"[Some] investors we see crave validation from a financial advisor," said Concannon. "So for those investors, being able to pick up the phone and have a video conference with a financial advisor, have a discussion about their needs and wants goes an incredibly long way to providing them the peace of mind that they so desperately need."

Time is on the side of the robo-advisory industry as the technology continues to improve and the younger generations accrue more wealth.

"I think some combination of the two probably is where we are headed for in the future," said Snipe. "I think the robo space has room to grow. I think it will obviously modify and change and become even more sophisticated."

About CNBC: From 'Wall Street' to 'Main Street' to award winning original documentaries and Reality TV series, CNBC has you covered. Experience special sneak peeks of your favorite shows, exclusive video and more.

Connect with CNBC News Online

#CNBC

Will Robots Replace Human Financial Advisors?

[MrKeyframes]

11 minutes and not a single chart comparing how well robo-advisors do vs a human advisor. Show us the numbers!

[StephanieWilliam-]

I'm curious, for someone with around $50, 000 to invest, how would you recommend we enter the market? I am looking study some traders and copy their strategy rather than investing myself and losing money emotionally. What's your take on this approach?

[Slickpete]

I know YouTube multi-comment spammer bots will replace regular people commenting on videos in the future hahahaha...

[Quickonomics]

"Yeah, you should definitely invest in tech stocks..." - Every Robo-advisor ever

[johngerring]

Financial Advisors are being exposed as being over payed for underperformance. Not only do you pay 1-2 percent in fees, but they create taxable events through higher speculation, all while underperforming the market.

[Pscribbled]

My experience from financial advisors is that a lot of the time, they have something to sell and aren’t impartial with their advisory. Maybe I’m not rich enough to pay for the impartial financial advisors who think of me first instead of selling me things.

[angelrobinson]

*No 1: Don't Only Hope On Government's Responds On security Matter's And Economy growth, *

*No 2: As An Individual You Should Be Safeguarded And Also Look For Different Self Business And Trade Not Only Waiting on Betterment of Stock market activities, *

*No 3: Most Important Always Save The Little You Can And Think Of What To Do With It When It Become Good For Capital, *

*Because Government Have Failed Us In Aspect Of Security, Economics Activities And Other Trading Systems.*

[christopherwalsh]

Just buy a bunch of ETFs, its literally the same thing.

[cheyenneharmon]

I love my robo advisor with Ally. For example, you need $100 to open, but for a financial advisor, it’s $2k a year to have access to them, plus they usually want $5k to begin investing. I’ve found it was difficult to find a financial advisor because I didn’t have any “wealth” to manage. At the time, I was fresh out of college, had a good job, living at home, I was looking for advice on my next steps, like a financial roadmap. The advice I received was “just stock up on cash”. But looking back, the better advice would have been to build my emergency fund, start investing, and decide when I want to move out. And would that be a home or an apartment and how to save / invest for them.

[alecjo]

Robot:"I got a great investment opportunity, it's call the T-1000, this little robot will help you around the house, be a great friend, etc.... dont worry, will never harm you or your love ones".

[XOPOIIIO]

With the same success they could replace humans in casinos.

[ntc_]

So I'm a little biased because I graduated college with a financial planning degree (and am close to becoming a CFP). I think that investments could definitely become automated (not sure of current performance though). But financial planning/advising is all about insurance, estates, retirement plans, etc. Its often beneficial for people to deal with other people compared to a robot because humans are not the most rational and logical people in the world. People have different priorities & needs that aren't logical. Its often quite hard to keep people on track with goals without that connection to a person who is telling them why to do X vs Y. A blend is most likely going to be the future.

[lk]

it is comfortable giving out the responsability of taking care of your money to a robot so you dont have to be responsible for the losses

[Bertinator-nmld]

Why not just grab an index fund and call it a day? Good long term performance and even lower fees!

[miguellopezbo]

I'm studying to become a financial planner. Financial planners are for people that already have more than a million in cash. Robo-advisors are a great place to start for young people like me that just graduated from college and started making money. A robot cannot replace personalized human interaction.

[peanutboy]

Also Robo advisor: *nOt FInanCial aDvicE*

[KTMarion]

Impossible. I'm glad everybody is getting to see that, Cash is thrash! It is designed to fail. 3 BEST and surprisingly easy ways to double/hold your funds in 2021; Crypto, Real Estates, who can guess the 3rd?

[na-cpkp]

Robo advisors and target date funds should replace 90% of financial advisors, but just like zillow should have replaced 90% of real estate agents, it’s not that simple. It’s a long road of re-education

[daniel]

It is great to see robo-advisors disrupting the industry. Most human financial advisors are not advisors at all but simply sales people who seek commissions from selling investment products which leaves their clients with no one acting as a fiduciary. Robo-advising is probably a much more streamlined business too which leads to lower fees for clients.

[thebabypete]

Major down side with Robo Advisor platforms is the lack of custom support. That’s a major issue when it comes to dealing with my money. Second you’re far better taking your money and not paying any fees for any type of advisor, due to the fact that educating yourself on the market will give you a better sense of what you’re buying and selling. Yeah, you can click and forget about your investments but in the long run you ROI will be far less than someone who is continuously educating themselves on the financial world. At the end of the day we are talking about your financial goals and money being made or money being left on the table. That is why I don’t like any Robo advisor’s for individuals that already know what they want in terms of financial goals or etc.