Robo-advisors trying to build trust for likely market correction

By Staff, with files from The Canadian Press | March 6, 2017 | Last updated on March 6, 2017
3 min read

With stock markets trading at or near all-time highs, an increasingly likely market correction means newer investors, like millennials, might unwisely pull their investments when the going gets tough.

To avoid that scenario, robo-advisors are working at educating clients to remain focused on their plans through market ups and downs.

At Wealthsimple, for instance, a first-time investor starts off in a more conservative portfolio even if it might not have the right long-term asset mix.

“It’s much more important to get the first six months to a year right for a first-time investor, and let them ease and dip their toe into the market,” says Dave Nugent, Wealthsimple’s head of investments.

He says its about educating clients about the risks of investing so that when the bad news comes, it doesn’t scare them off.

“If they sell within the first six months because the market goes down, it doesn’t matter whether their goal was one year or 10 years from now, they’re never coming back to investing,” he said.

Read: How many advisors will robos replace?

Chris Nicola, co-founder of WealthBar, says his company regularly communicates through its website, emails and hosts webinar sessions to help further client confidence and build trust.

WealthBar also uses a wide range of investment classes to help reduce volatility for investors.

“Robo-advisors haven’t been around very long, but the strategies that go into portfolio management and asset allocation aren’t new,” Nicola said.

Nugent notes that Wealthsimple has full-time registered portfolio managers available for clients to talk to on the phone, over email or video chat.

He says the company is also able to use its technology to identify and respond to investor concerns.

If a nervous client is constantly logging into their account on a day when markets are tanking, Nugent says Wealthsimple can contact them even if they haven’t reached out to the company.

“We can use the data we collect on our clients to actually provide a personalized experience to what they’re feeling emotionally,” he says.

But Matthew Lekushoff, a traditional financial advisor with Raymond James Ltd., says the personal interaction he offers can give him an edge.

“There’s a lot of trust there with my clients where they know that I’ve been doing this for over 20 years. I’ve seen a lot of different cycles, and we weather the storms very well,” he said.

“I’ve got the ability to pick up the phone and walk them through what has happened in the past, what may happen in the future and how our approach will be better than selling everything off.”

Lekushoff compared using a traditional financial advisor to using a personal trainer.

“You tell me what your goals are, like a personal trainer, and I’m going to try to get you from where you are to where you want to be,” he said.

Read: How to stay relevant in the age of robos

But Nicola says that kind of personal attention is unlikely for investors with small portfolios that are less lucrative to financial advisors.

“As advisors have continued to move upmarket, fewer and fewer people are getting that kind of relationship or advice,” he says.

Also read: Do human advisor fees offer more value than robo-advisor fees?

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Staff, with files from The Canadian Press

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