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Robos Slightly Outperformed Human Advisors in Client Satisfaction During Crisis: Report

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Cute robots (Image: Thinkstock)

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.

Traditional investors’ risk tolerance has been less affected by the market crisis than robo-investors’, according to the survey. The latter’s risk tolerance has either slightly or significantly, while the former’s has not changed or has increased.

And robo-investors are generally more likely to expect a second shutdown because of a resurgence of the coronavirus than those working with advisors. Eighty-nine percent of robo-investors said a shutdown was likely or very likely, compared with 77% of their traditional investor counterparts.

Both traditional and robo-investors in the survey said they were willing to earn less from their investments in order to ensure against losses, a sentiment traditional investors were likely to have before the crisis, according to Dalbar.

Among the firms robo-investors in the study worked with were: Acorns, Ally, Betterment, Blooom, Ellevest, E-Trade Core Portfolios, Fidelity Go, Financial Guard, SoFi, Personal Capital, Schwab Intelligent Portfolios, TD Ameritrade Essential Portfolios, Vanguard Personal Advisor Services and Wealthfront. 

Lessons Learned

The survey pointed up several lessons for those engaged in both digital and traditional advice.

Doing good for the community, outperforming benchmarks and transparency around performance build greater trust for robo-investors, while superior customer service is a stronger driver of trust among traditional investors. 

Both groups feel similarly about transparency around fees, and both kinds of investors said proactive communication was the most important factor in building trust during the market crisis.

Sixty-six percent of robo-investors would have liked to see their robo-advisor suggest better ways to protect their investments during the crisis, compared with 48% of traditional investors who said this about their financial advisor.

At the same time, far fewer investors working with robos — vs. those working with humans — wanted their advisor to communicate more frequently.

“Investors engaged with robo-advisors appear to be a ‘show me’ group, focused on higher returns and transparency around performance,” Dalbar’s chief marketing officer Cory Clark said in a statement. 

“They are not as concerned with the customer service aspects as those engaged with human advisors, who are held to a higher standard in some respects in terms of communication” Clark explained.

“When you consider the profile of the average robo-investor, along with the fact that most believe their account balance is higher today because of the help of their robo-advisor, it makes sense that trust and confidence would surge as a result,” he added. 

Among the firms robo-investors in the study were involved with were Acorns, Ally, Betterment, Blooom, Ellevest, E-Trade Core Portfolios, Fidelity Go, Financial Guard, SoFi, Personal Capital, Schwab Intelligent Portfolios, TD Ameritrade Essential Portfolios, Vanguard Personal Advisor Services and Wealthfront.