Robo-advisors seem to have passed their first big test with flying colors.
Dalbar, an investment research firm, reported recently that 82% of investors it surveyed were satisfied with their robo-advisor during the market crisis brought on by the pandemic earlier this year. This compared with 71% of investors using an advisor.
The survey, conducted in August, included nearly 500 investors in North America working with a robo-advisor and 500 investors working with a human financial advisor.
The study found that although human advisors were more diligent in communicating with clients than robo-advisors during the market crisis, less communication by robo-advisors failed to diminish the trust and confidence of their investors.
Indeed, 55% of investors with robo-advisors said their confidence had “significantly” increased based on their experiences during the crisis, compared with 28% of investors working with traditional advisors. Plus, 47% of robo clients said their trust had significantly increased in this period vs. 29% for the clients of human advisors.
Investors in the study indicated that they were inclined to retain their advisor following their investment experience during the COVID-19 crisis. Again, those with robo-advisors were more likely than traditional advisors to do so: 92% vs. 82%.
Ninety percent of robo-investors said their account balance was higher thanks to help from their advisor. Seventy-five percent of investors working with a traditional financial advisor reported that their advisor’s recommendations helped make their balances higher.
Robo-investors were generally less likely to follow the recommendation of their advisor than traditional investors. The one recommendation that robo-investors were more likely to follow — 71% of the time — than a traditional investor, though, involved investing more.
Doing nothing and waiting it out was a more common recommendation for traditional advisors and was their more common course of action, followed 73% of the time.
Reallocating assets was the course of action most commonly recommended to both types of investors and the one most commonly taken by both groups.
Cashing out was the recommendation investors did not follow, but it was also the action most likely to be taken against an advisor’s recommendation.
Market Crisis Effects
Dalbar’s survey found that 82% of investors working with advisors and 94% of robo-investors remain positive or have become more comfortable investing after their experience during the market crisis.
In addition, robo-investors are most likely to be prepared for the worst, with a defensive posture, while traditional investors are most likely to take a long-term view.