The latest market jitters are just another test for automated advice but early indications are clients are coping just fine
Just two days into 2016 and the markets are already trending down with no upside in sight and market volatility definitely in play.
Robo-advisors worry? Not so far.
"The smart people are using today to just check in on things," said Rich Hagen, president of TradeKing Advisors, an online investment platform, on Monday. "They aren't here to day trade or to time the market.”
Last August when markets experienced a major retreat robo-advisor clients held steady while stocks dropped by more than 6%. In the minds of the powers that be in the robo world all is well indeed.
Betterment, a robo-advisor that manages more than $3 billion in AUM, saw firsthand how its clients coped with the August downturn and are confident they’ve been able to communicate the positive aspects of this market volatility.
"Market volatility always happens," said Dan Egan, director of behavioral finance and investments at Betterment. "We think a little bit of market volatility is a good thing and helps people learn what seems scary on Friday may be forgotten about the following Wednesday."
Robo-advisors believe that it’s not how you deliver the message (in person, over-the-phone or via email) but rather the content of it. In other words it’s not what you say but how you say it.
"We think that's a common misconception," said Mike Kane, CEO of Hedgeable, another U.S.-based robo-advisor. "We send out push notifications. We can do that 24/7.”
The world’s become 24/7 when it comes to information; technology allows those offering automated advice to deliver important communications in a timely matter. For robo-advisors technology is the difference maker.
Most importantly, if you believe the argument of Celent analyst Will Trout, is that robo-advisors have younger clients, clients who are less apt to cut-and-run at the slightest sign of market volatility.
"Their [millennials] outlet is less of a guidance-focused, hand-holding approach and more of a self-directed approach. They will look at things a little more rationally than investors 20 or 30 years older,” Trout told Investment News. "The biggest value-add coming from the robos in times of turbulence is their sort of nerves of steel, or lack of nerves.”
Until now that’s only been considered a trait [handling market tips] of the full-service human advisor.
