Why is Robo-advice so appealing for Gen Z?

Robo-advice, or digital wealth management, is gaining popularity, particularly with Gen Z, as a way for individuals to receive financial advice and invest their money using algorithms and technology through apps and web-based platforms rather than human financial advisors.

As Gen Z continues to gain financial knowledge and independence, the adoption of robo-advisors is likely to grow as a convenient and cost-effective option for managing their investments and financial future. In fact, at Defaqto we have seen a number of large well-known providers entering the market in the last two years by either building their own offering or purchasing another established but non profitable platform with the plan to develop the app into a lead generating vehicle for their adviser arm.

So why is Robo-advice so appealing for Gen Z?

Digital Natives: Gen Z is the first generation to grow up entirely in the digital age. They are comfortable with technology and often prefer digital solutions for various aspects of their lives, including financial management. Robo-advisors are well-suited to this preference, offering an entirely online, automated platform usually an app.

Cost-Effective: Robo-advisors typically charge lower fees compared to traditional financial advisors. Gen Z, many of whom are starting their careers and have limited financial resources, find this cost-effectiveness appealing. It allows them to access investment and financial planning services without a significant upfront cost.

Accessibility: Robo-advisors make investing accessible to a broader range of people, including those who may not have a large amount of money to invest. Gen Z, often known for their financial prudence, can start investing with relatively small amounts of money, thanks to the low minimum investment requirements of many robo-advisor platforms.

Transparency: Robo-advisors often provide transparent information about their investment strategies, fees, and portfolio performance. Gen Z, who tend to value transparency and authenticity, appreciate this aspect of robo-advisory services.

Customisation: Many robo-advisors offer portfolio customisation based on an individual's risk tolerance, financial goals, and time horizon. Gen Z, like any generation, has diverse financial needs and goals, and the ability to tailor their investments appeals to their desire for personalisation. They are also aware of the need to be tax efficient and use wrappers such as an ISA or pension so will pick the provider that fits with that need.

Education: Robo-advisors often come with educational tools and resources to help users make informed financial decisions. Gen Z, many of whom are just starting to learn about personal finance and investing, can benefit from these resources. We are also seeing that the Gen Z generation like YouTube, TikTok and their peers for recommendations on what resources to use rather than the help from the adviser network or financial services industry.

Convenience: Gen Z is known for its on-the-go lifestyle and preference for convenience. Robo-advisors provide a hassle-free way to invest and manage finances, as they can be accessed and managed through mobile apps and websites.

ESG and Socially Responsible Investing: Gen Z tends to be socially conscious and environmentally aware. Many robo-advisors offer options for investing in ESG (Environmental, Social, and Governance) or socially responsible portfolios, aligning with Gen Z's values although they are equally aware of greenwashing when selecting investments.

While robo-advisors have several advantages for Gen Z investors, it's essential to note that they may not be suitable for everyone. The level of personalisation and financial guidance provided by robo-advisors can vary, and some individuals may still prefer the human touch of traditional financial advisors, especially for complex financial planning needs.