Generation X powering growth in robo-advisor popularity

Feb 15th, 2017 | By | Category: ETF and Index News

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Affluent investors between the ages of 35 and 51 represent approximately 40% of users on digital wealth manager platforms, up from 31% over the past year, according to a US-focused Cogent Reports study released by Market Strategies International. The findings suggest that Generation X investors are increasingly becoming the key demographic to future growth in automated investment advice firms, colloquially known as robo-advisors.

Generation X powering growth in robo-advisor popularity

According to the Cogents Report, affluent investors from Generation X comprise approximately 40% of robo-advisor users.

Robo-advisors provide online investment management services which employ algorithms to deliver low-cost online portfolios. These innovative website provides the investor with portfolio options based on their risk preference, which is determined through a behavioural questionnaire. To keep costs low, the portfolios generally are composed predominantly or exclusively with ETFs.

The report surveyed 3,910 affluent investors (those with at least $100,000 in investable assets) domiciled in the US with target quotas and weighting are set around demographic variables using the most recent data available from the US Census Bureau.

“While Millennials took the lead with early adoption of automated investment advice, now it’s Gen Xers that robo-advice providers should really focus on as they make up more than one-third of all affluent investors likely to consider robo-advice,” says Julia Johnston-Ketterer, Senior Product Director at Market Strategies International. “Gen Xers are not only increasing use of robo-advice, they are driving future development of automated investment advice offerings.”

Through analysis of the respondents’ behavioural traits, it was found that members of Generation X are less trusting of the financial services industry compared to Millennials, and less likely to seek advice from an investment professional than those in other generations. This trend is a key driver in their uptake of robo-advice services, owing to a preference for a transparent, rules-based and technology-driven investment experience, independent of outside human interference.

“Given that Gen Xers are more sceptical than their Millennial counterparts, likely robo-users in this generation are gravitating toward established brands with proven track records, such as Fidelity and Charles Schwab, more so than emerging providers for automated investment advice,” said Linda York, Senior Vice President at Market Strategies International.

The preference for transparent, rules-based investments has also been proposed as a significant factor in the trend towards greater adoption of passive investments over active, and the growth of the ETF industry in general.

According to the report, the top ten robo-advisor firms affluent Gen X investors would consider are:

Fidelity Investments
Charles Schwab
E*TRADE
Vanguard
Bank of America Merrill Lynch
JPMorgan
CapitalOne
TD Ameritrade
Motley Fool Wealth Management
Betterment

Investors in the UK also have a number of robo-advisor firms available to them, all of which provide access to portfolios constructed with ETFs. These include:

Moola
ETFmatic
MoneyFarm
Netwealth
Nutmeg
Scalable Capital
Wealthify

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