Robo-advisory services are often associated with millennials. This makes sense since these services’ client base skews younger than that of traditional wealth management firms. Wealthfront, for instance, has previously reported that 60% of its customers are younger than 35, while Betterment has said that 75% of its customers are under the age of 50.

Robo-advisers also offer features that millennials prefer: simple and transparent fee structures, an intuitive digital user experience, and personalization based on the user’s appetite for risk. Plus, today’s robo-advisers are aggressively positioning themselves as the millennials’ answer to traditional, stodgy wealth management firms, as evidenced by their marketing campaigns.

However, there remains a disconnect between these new services and the millennials to whom they cater. Robo-advisers might offer features that appeal to millennials, but their offerings are aligned with the goals of an older generation: Building long-term wealth through investment.

Businessman checking data on tablet, laptop
Millennials don’t need an investment adviser; they need a financial adviser that can help them balance their personal, career and money goals. Adobe Stock

While previous generations turned to investment as a vehicle to build wealth and, eventually, to retire, millennials’ goals are often much more complicated. Sure, millennials are thinking about long-term investment and retirement: 70% of millennials in a survey said they feel anxious about retirement savings. However, 40% of the survey’s respondents said they have no plan in place to save for retirement. That is because millennials have much more on their minds: Paying off student debt, advancing their careers in a more volatile job market than previous generations faced, and building families.

Millennials don’t need an investment adviser; they need a financial adviser that can help them balance their personal, career and money goals. So the role of a financial adviser needs to shift toward helping them accomplish their goals rather than simply build wealth.

To realize this vision, an automated adviser would need much more information than robo-advisory services typically collect during their account opening questionnaires. In addition to soliciting information on investment and risk preferences, the new type of automated adviser would need to understand customers’ goals and how they prioritize some goals over others.

Maybe a newly married couple has their sights set on buying their first home, while a new college graduate is weighing job opportunities in different cities with the first student loan payment looming on the horizon. Collecting this type of information could enable algorithms to advise clients on juggling their finances to reach their unique goals. The automated adviser would also need something some robo-advisers already have: a complete view of all of a customer’s financial holdings in real time. Then the service could benchmark a client’s financial health and progress against customers who have similar financial profiles and personal goals, as well as deliver real-time advice on purchases and financial decisions.

To be sure, technological advances are still needed to provide such complex and personalized advice. But nearly every major technology company now has a stake in artificial intelligence and machine learning development. At this point, an automated adviser that can provide insights around achieving personal, career and financial goals is simply a matter of time and could be a holy grail for a variety of different financial services providers. Certainly, many of them are positioned to take a shot at it.

Robo-adviser startups that have already gained a foothold with millennial investors could differentiate themselves more from traditional wealth management providers if they provided this type of service. Doing so could help them capture greater market share as millennials start to inherit their parents’ assets — a generational shift that could decide the winners among incumbents and upstarts in wealth management. Millennials, after all, are expected to inherit $30 trillion in wealth and investments from their parents and grandparents over the next couple of decades. Betterment, for instance, is already taking the first step toward more personalized advice by allowing customers to sync their external banking and investment accounts.

Personal financial management providers could also develop such a personalized advisory service. The popular personal finance app Mint already connects to most (if not all) of a customer’s accounts, and recommends financial products based on a user’s current savings, debt and investment holdings. It also allows customers to set their own goals, such as saving for a home or a vacation. A personalized automated adviser could help a PFM provider achieve far greater customer engagement, and potentially replace traditional financial institutions as the go-to source for financial advice and education.

Then there are the major technology providers that offer mobile wallets. Apple and Google are investing heavily in machine learning and could similarly turn themselves into trusted financial advisers. Traditional banks and wealth management providers could also obviously leverage such an offering to cement their relationships with millennials and ensure their relevancy in the future. Already, traditional financial services firms have started to build their own robo-advisory services to target millennials with investable assets. But the biggest mistake these institutions can make is to set up a robo-adviser and then assume they’ve done their job in tailoring their investment services to millennials. Rather, these institutions need to keep pace with the latest developments in machine learning, while also learning more about the goals and values of their millennial clients.

Today’s robo-adviser startups are only the beginning of what is possible with algorithm-based financial advice. Going forward, financial institutions need to view automated advice as that glue that can solidify their client relationships with millennials.

Paul Schaus

Paul Schaus

Paul Schaus is the president, chief executive officer and founder of CCG Catalyst.

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