Morningstar Magazine - June/July 2017 - 20

Dispatches

How Do People
Receive Advice?
Fintech has made
gains in the personal
finance space, but
there's room to grow.

HELLOWALLET

Jake Spiegel
As we mark the 10 anniversary of Morningstar
magazine and take stock of where we are as
investors, I wanted to look at how the nature of
personal finance has changed. Just 10 years ago,
HelloWallet had not yet been founded, Steve
Jobs was still readying the first-generation
iPhone, and banking tasks that we do online today
often required a trip to the local branch.
th

Given how rapidly technology has evolved
over the past decade, has the nature of receiving
financial advice changed alongside it? Has
financial technology started to fulfill its promise
of democratizing access to sound financial
advice? I rely on the Federal Reserve's most recent
Survey of Consumer Finances, as well the edition
preceding it by nine years, to explore these issues.

recommendations. It's reasonable that people
also are turning to the web for personal
finance guidance.
In the past 10 years, the share of households
using the Internet and online services as resources
when making financial planning and savings
decisions has increased to 35% of households
today from 19% back then. So, more people
are using these services, but have they democratized access to personal finance advice?
The average age of a household seeking advice
from online services increased to 46
from 42, which makes sense; back then, young,
tech-savvy early adopters likely dragged down
the average.
One might expect that as access is expanded
to those who might not otherwise receive
personal finance advice, the average income
of those seeking advice online would
decrease. However, the average income
of households actually increased to $112,000
from $105,000. This may not fit everyone's
idea of democratizing access. However, we
can say that fintech's role as a valuable resource
in planning, saving, and investing has
grown significantly.

Friends and family remain the most-used source
of advice for saving and investing decisions.
Despite proliferating technology, and a modest
increase in the reliance on financial planners,
the share of households responding that they used
friends and family as a resource increased
to 40% from 34%.
Peoples' financial lives are becoming increasingly
complex, as well, and online account-aggregation
services are particularly useful in turning
fragmented retirement accounts and credit cards
into a whole financial picture. Today, the
average household has more than six accounts to
track. However, the share of households using
software to help manage their money remained
within the margin of error, at 19.6%.
For all its promise, it appears fintech has
gained only a modest amount of traction in the
advice space and has a way to go in terms
of expanding access across the age and income
spectrum. This isn't to say that the logic
underpinning it is flawed, or democratizing
access to financial advice with technology is not
worth pursuing. And this analysis only looks
at the sources of advice, not the quality
of advice. Large-scale transformations, particularly

Friends and family remain the most-used source
of advice for saving and investing decisions.

Changing Nature of Advice

It is difficult to quantify the extent to which
different data sources of advice lead to
better outcomes using government survey data.
But we can gain insights into the changing
nature of advice by observing the share of people
seeking different kinds of advice and by
examining the demographics of people seeking
that advice.
The Internet permeates our daily lives-75% of
people in the United States are Internet users,
according to the World Bank-and people
increasingly rely on web-based applications
to hire taxis, order takeout, and generate movie

20

Morningstar June/July 2017

Traditional Planners Gain

Interestingly, the reliance on traditional financial
planners increased modestly, to 26% of
households from 19%. This should allay fears that
traditional planners might soon be obsolete.
Indeed, personal finance applications can
complement traditional planners, enabling them
to serve more clients by boosting productivity
and enhancing the quality of their advice
by giving them a more complete view of their
clients' finances.

those revolving around personal finances,
don't happen overnight, and behavior changes
take both time and effort to establish. K
Jake Spiegel is a senior analyst with Morningstar's policy
research team.



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