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As markets plunge, robo-advisers urge caution

Suman Bhattacharyya & Angely MercadobySuman Bhattacharyya & Angely Mercado
March 9, 2020
in Banking, Strategy
Reading Time: 3 mins read
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In the wake of today’s stock market free fall, the novel coronavirus and an oil price war, digital investment advisers are encouraging their customers to think long term and not make any rash decisions.

The advice is consistent  with a long-term investment approach and guides against knee-jerk reactions to buy or sell. Or, to put it in layman’s terms, don’t panic.

“During periods of uncertainty like this, it becomes even more important to focus on your goals and not get distracted by short-term losses,” SoFi wrote in a recent blog post. “Getting your money right as an investor means staying the course and having the assurance that — in the long run — markets tend to increase.” 

Eric Sandrib, research associate at Aite Group, said robo-advisers, which rose to prominence after the Great Recession, haven’t had their models tested by an economic downturn. He noted that the recent market turbulence will test their abilities to handle proactive and reactive inquiries from customers via call centers, blog posts and other messages.

“With the robo-advice players, their main message to clients is to weather the storm and stick with your plan, don’t just sell based on emotion,” he said.

See also: ‘If we can’t automate it, we don’t build it’: Wealthfront’s Andy Rachleff on ‘self-driving money’

It was no doubt difficult to keep emotions in check today. Large bank stocks tumbled by the double digits at press time, with JPMorgan Chase at $93, down 13%; Citi at $51, down nearly 16%; and Wells Fargo at $32, down 12%.

Prominent, publicly traded fintech companies also were not spared of the brunt of the market turbulence, with Square shares at $66, a 9% drop; LendingClub holding at $9.7, a nearly 4% drop; and PayPal at $102.83, a 7.2% drop.

Among the most acutely affected by the recent turbulence was digital trading platform Robinhood; it recently experienced two major outages, which the company attributed to “highly volatile and historic market conditions; record volume; and record account sign-ups.”

Robo-advisory platforms are urging clients not to make any quick-fire decisions based on short-term volatility. In a recent blog post, Wealthfront reminded users that volatility and uncertainty are inevitable characteristics of the markets. “So, what’s our advice for worried or anxious investors? The same as always: do nothing,” the post read.

“[Digital platforms] are getting higher volumes of people calling in asking for advice,” Aite’s Sandrib said. “How will those call centers operational handle all this? Have they tested this before? This is a new situation since these startups have come online.”  

Meanwhile, for the past week, Betterment included an in-app notification under https://www.betterment.com/category/market-crash/ to comfort customers worried by recent events.

“Selling investments during times of market volatility is likely to do more harm than good because you could be locking in losses,” read the response from Betterment,” derailing your financial plans.”

The Banking Automation Summit, which takes place from June 1-2 in Miami, is a unique opportunity to share insights, trends, strategies and best practices on back-office automation in financial services with the industry’s leading practitioners. Register here.

 

Tags: bettermentCoronavirusPremiumRobinhoodSales & MarketingSoFistartupsWealthfront

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