Skip to main content
globe advisor contributor network

Humans and technology can work in tandem during a downturn to offer sophisticated advice that acknowledges a client’s particular life goals or wider investment strategy, thus delivering the sought-after personalized service.Zapp2Photo/istock

There’s no denying that robo-advisors have had a profound impact on the investment industry for much of the past decade – and they’re set to take an even greater slice of the global wealth-management pie in the years ahead. That’s because investors tend to like robo-advisors for their low fees, digital-first nature and user-friendliness. Still, it’s worth remembering one crucial fact before getting carried away by the robo-hype: robo-advisors’ mettle has yet to be tested.

So far, robo-advisors have been reliable, producing favourable outcomes during the longest bull market in United States history. However, their performance in less favourable conditions is unknown. When there is a market downturn and investors are looking to recession-proof their portfolios, they may not be as keen to rely on robo-advisors. In all likelihood, they will crave actionable advice from humans.

That’s not to say that there will be a mass exodus from robo-advisors in the event of a market downturn; rather, this technology alone may not be enough to reassure jittery investors when the chips are down. There’s a good reason why investors may cool on automated advice in leaner times. Robo-advisors’ biggest asset – their ability to cut out human influence and calculate a reasonably robust investment strategy from just a few data inputs about risk appetite and liquidity – will suddenly feel like their biggest liability.

Robo-advisors cannot yet provide the sophisticated insight of an experienced human advisor, which is essential to the investor whose emotions fray as the market wobbles. For example, an investor who is anxious about losing money might feel a strong impulse to sell during a downturn, or even buy stocks that suddenly look cheap. A human advisor can counter that irrational instinct with experience and well-honed judgment.

Even at the best of times, generic product-focused advice and services support don’t cut it with investors anymore. They now expect personalized advice and benefits, tailored to their overall life goals. Research also shows that experience is the first quality that every generation seeks in a financial advisor. Thus, it’s only natural that, at the worst of times, investors will seek out experienced financial professionals who are veterans of market volatility.

Yet, it’s not only a human-focused approach that can succeed during such lean times. Wealth managers may find that a “hybrid” approach – part computer, part human – is the best way to navigate clients through the turbulence. That’s because there’s a mini-paradox at play in wealth management: although most investors value human interaction, they also expect everything to be delivered digitally.

Wealth managers will be rewarded for digital campaigns that deliver relevant content – such as market updates, videos, industry commentary and webinars –to investors via e-mail, mobile messaging and social media. Phone calls and in-person meetings will be the perfect side dish to the digital feast.

Human advisors also have a wealth of new technology and mountains of data in their arsenal that they can deploy to execute their hybrid battle plan. For example, artificial intelligence (AI) could identify which stocks and sectors are generally safer harbours during market turbulence. Wealth managers can then share this AI-derived insight as an infographic with the investor, who is likely to be stressed and seeking answers. This will offer clients a reassuring snapshot of their current situations as well as the broader market environment.

These examples illustrate the beauty of a “hybrid” approach – or how humans and technology can work in tandem during a downturn. They can combine to offer sophisticated advice that acknowledges a client’s particular life goals or wider investment strategy, thus delivering the sought-after personalized service. The value of an investor’s trust will be evident when calmer waters prevail.

The case for hybrid advice during a downturn is even stronger when you consider the preferences of millennials. This generation is relatively timid when it comes to investing their money – only 38 per cent of millennials are confident investing in the U.S. stock market, according to a survey conducted by Broadridge Financial Solutions Inc.* and the Center for Generational Kinetics. The study also found that millennials are the least confident generation when it comes to robo-advisors.

Nevertheless, this younger generation is generally willing to consider slightly riskier investment options, such as private equity or global markets. This strange cocktail, which muddles uncertainty with an appetite for risk, suggests that millennials will be particularly in need of human interaction during any market downturn.

Of course, there’s no precedent for this kind of scenario. Digital technology was thin on the ground during the previous financial crisis and, right now, there are no clear signs of an economic slowdown. But the fickleness of financial markets means that it’s always worth being prepared. A robust hybrid strategy is a sensible idea at the best of times. It will be twice as valuable to both investors and advisors when times are lean.

*Donna Bristow is managing director, North American Wealth, at Broadridge Financial Solutions Inc. in Toronto.