Robo Advisor Trading Still Needs a Human Touch

A recent E*TRADE survey found that investors prefer hybridized solutions that combined both a human touch and automated technology.
Photo: Jeff Patterson

E*TRADE Financial Corporation (ETFC) has announced the latest results of its quarterly tracking study of its investing community, StreetWise, which yielded several interesting preferences, including a propensity of support behind the utilization of digital guidance for investing, according to an E*TRADE statement.

As modern technology continues to evolve, more and more traders confront the reality of automated trading or robot-aided (bot) decision-making in their trades. E*TRADE’s StreetWise asked investors to essentially choose between three account types:

  • Low cost, digital-only solution, managed and rebalanced solely by an algorithm
  • Moderately priced, digital hybrid solution, automatic rebalancing and human guidance
  • Higher cost, advisor-driven account, managed solely by a professional

Interestingly, investors opted overwhelmingly to choose the middle solution, which relies on a hybridized model with automatic rebalancing as well as retaining a human component. It is worth noting that while many traders seem to have embraced the advent of technology, they still yearn for a ‘human’ touch in some capacity, even incurring a slightly higher cost in the process. This preference was particularly pronounced amongst Millennial and Gen X investors, many of who have grown up with computing technology for their entire lives.

The results also help lend credence to investing products as a whole, as individuals do not rely strictly on active or passive managed instruments. This explains at least partially why passive options such as exchange-traded-funds (ETFs) are not the most popular investing instrument, and that many portfolios typically feature a mix of more active constructs, along with the aforementioned passive instruments.

According to Kunal Vaed, Senior Vice President (SVP) of Digital Channels at E*TRADE Financial, in a recent statement on the results: “The data suggest a new paradigm in robo-advisory models: adaptive solutions backed by human support.”

The idea that younger investors will only gravitate towards the cheapest solution is a myth

“The idea that younger investors will only gravitate towards the cheapest solution is a myth. While intuitive and insightful digital tools are a necessity in catering to today’s investors, at the same time, investors seek human guidance. Investors want to be able to talk to a professional, especially during extreme market volatility,” he adds.

“Machines are not taking over the world. Despite the rise in software, the data suggest human guidance and support still have an important place in the minds of investors. Value matters. Much has been said about how attractive low or no-fee platforms have become, particularly for younger investors. Yet results show that Millennials and Gen X are not entirely driven by cost. Many investors today are willing to pay more for a robo-solution that includes some human support,” he reiterated.

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