The world's stock exchanges are undergoing fairly turbulent times, with jumps in one and the next day in the other direction. The first true test for robo-advisers, the digital wealth managers.
In some instances, customers woke up with a bad hangover, suggesting that the human adviser hasn't yet done his bit. The incidence of negative surprises feeds the convictions of those who always said that the true test of computer management would come in a bear market.
The crash in China, which led to jitters around the globe and still keeps investors awake at night was exactly that, putting the trust of clients of robo-advisers to the test.
Drop and Recovery
And a tough test it seems to have been. A customer of TrueWealth, a Zurich-based online wealth manager, said in an email to finews.ch: In the summer, he had put together a portfolio he judged to be well balanced, and which promised a «reasonable» performance even in difficult times.
With the crash, the portfolio dropped heavily, much lower than the SMI for instance: «I didn't expect my investment to decline as much in such a short time,» he wrote. In the meantime, more than half of the drop has been recovered – which was after all better than the benchmark, he added.
TrueWealth didn't comment when contacted by finews.ch.
Nerve-Wracking Experience
Investors got the jitters not just at TrueWealth. Clients of Wealthfront, the U.S.-based online investing startup, became disgruntled about the performance, «Investment News» reported.
An investor said on Twitter: «My portfolio looks hopeless.» Investors ought to keep a long-term perspective, Wealthfront answered, not unlike any traditional investment bank might have done.
Machine Remains Machine
The volatile environment was a challenge for robo-advisers, Joel Brucksteiner, an adviser on tech-tools told «Investment News». The biggest was: What happens when customers panic and request to speak to human beings?
And that's the crux of the matter: Robo-advisers are machines, bull or bear. Customers accept the fact that machines don't become human when they sign up to the robo-adviser. After all, they pay much lower fees.
Human Voice and Robo-Adviser
The yearning for a human touch was also felt at Vanguard Personal Advisor Services, which offers advice over the telephone in addition to the robo-adviser. The personal calls had increased by 9 percent compared with before the turbulences, the company said.
TrueWealth and VZ Vermögenszentrum, Switzerland's first robo-adviser, both offer personal advice over the phone. In fact, most robo-advisers are hybrids. Zurich-based PHZ Bank has become one – and is now called Leodan. And the U.K.'s Betterment plans to hire advisers, as finews.ch reported.
