'Robo-advisor better at protecting clients during downturn'

CEO explains why actively timing the market does clients a disservice

'Robo-advisor better at protecting clients during downturn'

The belief that active managers reduce losses during a downturn are not backed up by numbers, according to the head of a robo-advisor firm.

Randy Cass, CEO, founder and portfolio manager at Nest Wealth, took part in a Robo 2.0 panel at the Radius Exchange Traded Forum in Toronto yesterday, outlining his company’s B2C passive ETF offerings and putting the case forward for the robo evolution.

He believes that sticking to a low-cost, diversified portfolio beats trying to market time.

He told Wealth Professional: “We don’t have this omniscient quality among the vast majority of industry participants to know when to reduce risk and when to make adjustments that in the long term are going to work out.

“As boring as it seems, in a downturn, in an upturn, in a sideways market, the numbers clearly demonstrate that the best course of action is not to try to market time, not to adjust the variable that you can’t control but to make sure that you continue to hold a low-cost portfolio with a diversified asset mix that reflects the risk tolerance that you hold, from a psychological and financial point of view.

“Any deviation from that in the long term has been demonstrated to destroy more wealth than add to it.”

Cass, whose average client is 48 with $175,000, explained how monitoring online activity – how often clients check portfolios, how often they adjust online tools, for example – allows them to segregate customers and reach out personally to those who need reassurance or assistance.

He said this actually helps communication with those who require a more personal touch when the markets get wobbly.

He said: “If we can better educate, better prepare, better communicate, make sure that people’s portfolios are within risk tolerance, not an arbitrary one, the more likely we are to help them achieve the goal of weathering this storm and coming out the other side.

“If we start to pretend we know when the drawdown is over or how actively we can demonstrate we are not going to miss the turn and are going to be able to double down at the bottom, I think that does a huge disservice to our client base.”

Cass added that the fixation on the millennial market and their supposed preference for robo advice does a disservice to other demographics who actually have more wealth and are more affected by market conditions or fees.

He said: “When you think of who is suffering the greatest pain right now with being defaulted into a 2.5% mutual fund when they walk into a bank branch, it’s someone with some degree of wealth already.

“Not millions, they can’t get through the door of a full service financial advisor but at the same time, the thought of them putting £300-400,000 into a 2.5% mutual fund and giving up 30-50% of their potential wealth? That’s an immense amount of pain that they’re suffering.

“So when they find a solution [like us], they’re like we can come over to you and get an as sophisticated, if not a more sophisticated portfolio construction, get a real person on the other end of the phone, get a great UI UX, a transparent experience and save a couple of hundred thousand dollars over the course, it’s easy to understand the value.”


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