Robo-advisers put to the test: How this new industry reassured panicked clients

Robo-adviser platforms were quick to react to Monday's market sell-off, using technology in their favour.

As the Dow Jones Industrial Average plunged more than 1,000 points shortly after the open and the TSX plunged deep into the red, online portfolio managers reassured clients via e-mail, text message and instant messaging.

For many online portfolio managers – commonly known as robo-advisers – a large percentage of their clients are made up of millennial investors who have limited experience with market downturns and volatility.

As well, millennials are more inclined to want quick and mobile communication from their wealth managers rather than the traditional adviser phone call. Approximately 61 per cent of Generation X and Y investors prefer to access their financial assets by a mobile device, according to a Millionaire Outlook report by Fidelity Investments.

"Newer and younger investors want to know the simple reason behind these occurrences in the markets," says Dave Nugent, portfolio manager and chief compliance officer at Wealthsimple, who received several texts and phone calls from investors on the weekend.

'They wanted to know what was up. And they wanted to know in very basic terms," Mr. Nugent says.

By mid-morning Wealthsimple had distributed a simple two paragraph e-mail with an explanation around the questions of "what is happening with market volatility – namely China" and "what investors should do."

"Which is nothing," Mr. Nugent says. "It is all about putting things into perspective. We preach about diversification and not market timing. That is one of the main reasons people are signing up with online investment platforms."

Vancouver-based WealthBar Financial Services Inc. prepared a market update for clients Monday morning, which appeared as a pop-up alert after an investor logged in.

"This style of pop-up message is to inform clients of material changes or events that may impact their accounts, such as the significant market shift we saw today," says Tea Nicola, chief executive officer of WealthBar. "This type of just-in-time messaging doesn't clutter an investor's inbox, yet for those who are interested, it is the first thing they see when they log in."

Monday's market dive is a first for these new wealth managers. Many of these online portfolio managers are new to the Canadian industry, with the majority of them joining the financial-services industry within the last year.

Seen as industry disruptors to the traditional financial advisers, the handful of providers have been criticized for their limited manpower to have direct contact with clients – especially if markets turn.

"I think one of the big differentiators between the traditional platform and the online platform is our ability to communicate en masse," Mr. Nugent says. "The old way of face-to-face meetings is not necessarily what the next generation of investors is looking for."

Wealthsimple has set up live chat sessions with its investors who are looking to connect with a portfolio manager about this week's market activity.

"Our clients are investing in a longer term passive strategy so the conversations are more about 'Should I be putting more money into the market now?' as opposed to hitting the panic button," says Mr. Nugent.

Looking for the next buying opportunity is a difficult strategy for the robo-adviser clients – as portfolios are not built with market timing in mind.

Invisor Investment Management – the latest robo-adviser to hit the Canadian marketplace this past spring – sent a mass e-mail communication directing clients to the company's blog to shed some positivity on the Monday morning chaos "This is something we have been monitoring over the last week on our blog as we have seen drops in the Chinese markets, but there [are] also a lot of stories of improvements that we wanted to share as well," says Pramod Udiaver, Invisor co-founder and CEO.

"While there certainly are some disruptive events, they are the result of the seven-year bull market trying to tame excesses," portfolio managers wrote in a blog post. "The bright spots are in the developed markets which tend to suggest economic fundamentals are improving, and have stabilized an otherwise volatile few months. … Volatility will likely persist, but those who do not react quickly to market spasms will benefit the most in the long term."