An oft-repeated critique of robo-advisors is that in a market downturn, there’s no one to hold clients’ hand and keep them in the market.
David Lyon, founder of Oranj, a digital practice management application, has seen that attitude firsthand. When he meets with firms and the conversation turns to robos, “Most advisors’ first reaction is, ‘Oh, wait till the market downturns. Everyone’s going to be running for the doors,’” he told ThinkAdvisor on Wednesday. “That’s what happened to eTrade during the recession and everyone moved to cash.”
However, he added, “I think it has to be a bigger dip than a week to really settle in with people’s emotions.”
That appears to have been the case at Betterment. According to Arielle Sobel, a spokeswoman for the robo-advisor, “our customers behaved incredibly well,” with less than 2% changing their asset allocation.
The platform experienced very large onetime deposits from customers, saw a “strong increase” in signups and had a “record week for tax-loss harvesting, which helps our customers when the market drops.”
Sobel told ThinkAdvisor in an email, “Our customers are smart. We continually educate them on the need to stay long-term focused, and have placed behavioral finance at the center of the platform to help with volatile times like these.”
Lyon noted that the true impact of the recent volatility on robos probably won’t be known until they report their AUM numbers.