Market downturn provides test for robo-advisers
The recent market turbulence has also provided a test for online portfolio managers, commonly known as roboadvisers. Despite the “robo” name, this relatively new form of low-cost investment management comes with limited amounts of support from fully qualified human advisers.
But investment industry skeptics have long wondered whether robo-advisers can provide enough human advice to meet client requests during periods of financial turmoil, when such demands tend to be at their greatest.
So far during the COVID-19 crisis it appears that roboadvisers have been able to keep up with demand and provide human advice on a timely basis.
“We didn’t really have any trouble keeping up with it,” says Daniel Tersigni, a portfolio manager at Wealthsimple, by far the largest Canadian roboadviser.
Clients have been able to book phone calls with Wealthsimple portfolio managers with lead times ranging from same day to a maximum two days, says Tersigni. They have been able to respond to the “vast majority” of high-priority emails within one business day, he added.
Robo-advisers provide easy online account access across multiple devices, streamline processes and automate routine activities like the administrative side of setting up a new account. They typically use ETFs to create balanced portfolios that are matched to client needs in large part based on an online questionnaire.
Once the portfolio is in place, robo-advisers rebalance automatically and typically advocate a “stay the course” approach to maintaining the target asset allocation. They usually use website blogs and videos, as well as broadcast emails, to re-enforce that message.
Both Wealthsimple and another robo-adviser, Justwealth, say they have seen widespread acceptance among their clients of the “stay the course” philosophy during the COVID-19 crisis.
James Gauthier, Justwealth’s chief investment officer, says the firm has received more inquiries from clients interested in increasing their equity positions to take advantage of lowered stock prices than it has from anxious clients tempted to reduce their stock allocation.
Gauthier estimated that about one per cent of the firm’s clients have reacted emotionally to the stock market decline by insisting on a reduction of their equity exposure.