Are robo-advisors and CRM2 effective among investors?

A JD Power study shows millennials’ satisfaction with robo-advice and no improvement in investors’ comprehension of fees

According to the recent 2016 Canadian Self-Directed Investor Satisfaction Study conducted by research firm JD Power, robo-advisors are gaining a strong millennial following.

Survey results showed that millennials are gravitating towards robo-advisors at a higher rate than other age groups. Sixty-six per cent of millennial respondents indicated interest in robo-advice if their firm offered it, compared with an overall figure of 54% for all investors. Declared adoption of the technology is also higher among millennials: 11% of millennial respondents said they’ve actually used a robo-advisor, compared to 6% for the whole population.

Among those millennials who disclosed their use of robo-advisors, 54% were equally satisfied or more satisfied with their robo-advisor experience compared with their primary self-directed firm.
Robo-advisors, which are a low-cost and high-tech source for automated portfolio management services, are already offered by several firms, although investor awareness and understanding is still very limited.

“The robo-advisor market in Canada is still relatively small, but there are a number of factors likely to drive continued growth,” said Mike Foy, director of the wealth management practice at JD Power. “Millennials are now the largest segment of the workforce and are not only more comfortable than their parents with technology-based solutions, but they are also more likely to be looking for guidance as they accumulate wealth and their financial lives become more complex.”

Another finding of the study is that despite the push for more investor transparency as part of the last rollout phase of CRM2, there has been little to no improvement in investors’ understanding of fees.

“The needle really hasn’t moved in five years,” said Foy. “In 2012, only 39% of self-directed investors said they completely understood the fees they were paying, and in 2016 it’s still 39%. Increased disclosure does not automatically create transparency. Firms need to ensure they are explaining information effectively, as we see a very strong correlation between understanding and satisfaction when it comes to fees.”

Ranking self-directed investment firms according to customer satisfaction, the JD Power survey results put National Bank Direct Brokerage at the top of the list, followed by BMO Investorline, CIBC Investor’s Edge, and RBC Direct Investing.

Related stories:
Study finds gaps in robo-advisor industry
BCSC releases informational videos on CRM2