Investors in the United States have a limited understanding of how much they pay for investment advice, a high willingness to switch advice providers for lower fees, and enthusiasm for digital solutions. A.T. Kearney’s 2016 Future of Advice study finds that investment service providers must adjust their business models to survive in an increasingly competitive market.
A.T. Kearney’s 2016 Future of Advice Study, based on a research survey of “mass-affluent” U.S. adult consumers—those with at least $50,000 in household investable assets—finds a marketplace ready for dramatic change. Two major market forces will continue to disrupt the industry: increasing pricing transparency, and the growing impact of technology on consumer engagement and empowerment.
Two-thirds of mass affluent advised investors do not know if they pay or how much they pay for investment advice. Moreover, 72 percent of those who know how they pay for advice—and more than 90 percent of those younger than 35—say they are willing to switch advice providers for lower investment advice fees (Figure 1). As a result, increased pricing transparency could have a major impact on investor decision making regarding who they partner with to manage their investable assets.
Technological advances, such as robo-advisory, are also ushering in significant changes in consumers’ approach to investing. In terms of advisory models, 30 percent of investors are self-directed (make their own investment decisions), while another 11 percent fully delegate their investment activities to someone else. The survey shows, however, that over the next five years investors are likely to shift toward lightly advised (advisors recommend, but investors have the final decision) or “validator” (investors make decisions but validate them with advisors) advisory models. For delivery models, more than half of advised investors use a dedicated advisor today, but investors are expected to increasingly shift to different service models, particularly the “digital-plus” model in which an online platform uses technology to deliver investment advice, but access to a person is available (Figure 2).