After all, robo-advisors are beginning to mature in turmoil markets. Likewise, let’s think back to another similar situation this year.
Recall the January sell-off that was caused by a number of factors, including China’s economic slowdown, the decline of a previously strong IPO pipeline, concerns about central bank money flows, and the continued pessimism on oil and commodities. Uncertainty about the high-yield market and energy company prices, dividends, the pace of global market recovery and the central banks’ abilities to adequately intervene to spur any real impact were influences as well.
This led to much higher than average call volumes at major retirement advice providers and caused a number of robo-advisors to issue whitepapers in an attempt to assuage their customers’ concerns about the market sell-off and resulting uncertainty. The gist of their message was that a punctuated market event is no reason to throw away the playbook and start improvising.
A good financial advisor, armed with the appropriate technology tools, helps with all of these things. They can analyze your entire life and help you see hidden correlations and tail-risks that you might be blind to.
Today’s advancements in technology offer financial advisors with the tools to take a more holistic approach to managing wealth and investments for clients. Considering aspects beyond an individual’s age and income, including exposure from real estate, health, family responsibilities, career and even geography, enable advisors to construct a truly suitable investment portfolio, tailored to each individual’s distinct risks and financial situation. They can ensure that the client is appropriately invested to reach goals while minimizing risk, and provide sound and calming advice in stressful and unexpected sell-offs. Alex would have had some awareness about the hidden correlations amongst his holdings if a financial advisor has guided him with these tools.
With the help of a thoughtful and thorough financial advisor, be it human or robo, who can identify the hidden correlation in his assets and advice on his overall exposure accordingly, Alex may not have found himself in such a stressful situation in the first place. More importantly, with the assurance and handholding of a financial advisor, he would be prevented from making a momentary and panicked decision to abandon the financial plan.
Since Jun. 24, most U.S. markets have recouped their losses or at least bounced off their Friday and Monday lows. Again, the assertion here is not that global markets are never going down again; rather, sound financial planning with a trusted advisor will help investors avoid impulsive decisions that could be detrimental to the financial goals which they have worked so hard to achieve.
Halting trading may have prevented client losses but it feels more like my home country, China, where markets are intervened. If clients had worked with a human advisor who communicated a clear playbook beforehand, perhaps a circuit break would not have been necessary. Regardless, it’s beneficial that robo-advisors are experiencing market turmoil as they mature.
Min Zhang is CEO and co-founder of Totum Wealth.