Trump win is no Brexit shock for robo advisers
Another surprise election result, but Donald Trump's presidential victory didn't affect robo advice platforms in the way that the Brexit vote did just months ago.
Robo providers claim their performance on Wednesday shows that clients are learning to trust the automated advice model and not panic.
Industry observers, however, say the burgeoning robo advice industry just got lucky with the market's quick movement to price in a Trump victory.
"I think they all breathed a sigh of relief that there wasn’t any volatility on the downside, thus the lack of any noise or need to communicate," says Tim Welsh, president and founder of consulting firm Nexus Strategy.
As election results progressed in Trump's favor Tuesday night, Welsh and others became focused on seeing what action Betterment would take this morning.
The independent robo leader stirred controversy in June when it decided to extend its standard 30 minute trading delay in the morning after the U.K. vote till nearly noon, informing only adviser clients about its decision.
The New York-based robo adviser defended its actions then, citing its policy and discretion to take action on behalf of investors.
On Wednesday the robo adviser approached the election news and its impact on markets following the same process it would on any other day, but with heightened attention due to the election, said company spokesman Joe Ziemer.
"We carefully followed the extreme volatility the Trump victory caused in the overnight futures markets, and were on heightened alert leading into this morning's U.S. market open," he states. "It became clear that the markets were operating in an orderly manner, and we made the determination to not delay trading beyond our standard 30 minute delay at the open."
The firm's decision has advisers and clients questioning the investment policies and maturity of the digital platform.June 29
The adverse reaction to its June decision means that no robo platform will likely ever halt trading in that manner, says Joel Bruckenstein, co-creator of the Technology Tools for Today conference series and technology guides for advisers.
Its June decision attracted regulator scrutiny, with the Massachusetts’ securities regulator sending a letter in September asking Betterment to amend its client communication policy and to send a copy of its changed policy to the regulator
"If they did that again, it would be the kiss of death," Bruckenstein says.
'OFF THE HOOK'
Advisers with accounts on Betterment's RIA platform said they received no communications from the firm on Wednesday about any delay.
"The backlash they received last time and the legal issues they've faced suggests they are not going to repeat that response," says J.R. Robinson, Betterment for Advisors client and owner of Financial Planning Hawaii.
"The market response this morning got them off the hook anyways."
As results came in on election night, there was no concern about Betterment among advisers in the XY Planning Network, says Michael Kitces, co-founders of the network, which has a partnership with Betterment for Advisors.
"Criticizing Betterment for this is kind of like being critical that a gun has the safety on while you're pointing it at your own head," Kitces says. "You may be annoyed in the moment that you can't do what you're trying to do, but looking back on the long run there's a good chance you'll be thankful."
The market, of course, never appreciates a surprise, notes Rob Foregger, co-founder of enterprise platform developer NextCapital, who questioned the ongoing scrutiny of robos in times of volatility.
"I am not sure what the difference is between a new robo platform and other automated TAMP and SMA platforms that manage hundreds of billions of dollars with a similar technology stack," Foregger says. "Seems like myopic fixation, perhaps?"
A number of robo advisers were proactive about client messaging and education regarding the election, with social media posts reminding clients to stay the course, no matter who won the election.
Personal Capital conducted a survey with polling firm Ispos about this year's elections and posted the results on its blog. Among its findings: Republicans are more likely to have retirement accounts than Democrats.
"Trump stepping into office does not change Personal Capital's investment strategy," said Mark Goines, vice chairman of the San Carlos, California-based firm. "We're not doing anything differently from an investment standpoint, and we continue to look for opportunities to rebalance or tax loss harvest as a result of volatility stemming from the election."
Goines adds that his firm only saw a slight uptick in email volumes from clients, but its app traffic was notably higher than average Wednesday, which could be due in part to markets being up.
"Within our app and dashboard, we’ve seen log-ins spiking tied to big swings in the markets and major turning points throughout the election," Goines says, "demonstrating that people are more concerned about their money during political events."
Schwab Intelligent Portfolios, the custodian's digital offering, declined to comment on its Wednesday totals.
Betterment's independent robo competitor, Wealthfront, noted that there was some panic among clients late Tuesday night.
"I wouldn't say that was the norm for the majority of our clients," says spokeswoman Kate Wauck. "Once it was clear which way the results were swinging we were able to quickly push out a blog post to our clients urging [them] to stay the course and not internalize the headlines too much."
Wauck added that on Wednesday morning, a number of clients who had scheduled withdrawals called to cancel them.
"We're seeing less and less panic during market events, which makes me hopeful that we are successfully educating our clients on good investor behavior," Wauck says.