The lockdown has been good for automated advice

Technology has played a vital role during the pandemic and will become instrumental for the advice industry moving forward

Tech adoption has been a welcome bright spot during the economic downturn that has wreaked havoc on global economies and client portfolios.

As indexes plunged, advisers embraced tech tools like portfolio management systems to monitor performance or video teleconferencing apps to reach out to worried clients. 

Somewhat surprisingly, however, investors have also embraced the latest investing technology and have flocked to digital investment platforms to buy the dip during the selloff. 

According to the consulting firm Aite Group, which tracked digital investors during the worst of the recent market plunge and ensuing lockdown, automated investment firms reported significant surges in new client accounts. Discount brokerages, for example, indicated the rate of new account openings increased between 50% and 300% during the first quarter of 2020 compared to the fourth quarter of last year.

Charles Schwab Inc. experienced one of its highest quarters historically in terms of new account openings across all digital offerings, according to the brokerage’s vice president of digital advice Cynthia Loh.

That’s despite the performance of robo-adviser portfolios from the likes of Schwab, and many of its competitors, all of which tanked on average about 15% in the first quarter as the S&P 500 shrunk by almost 20% and the Dow Jones Industrial Average had its worst first quarter on record, according to the research firm Backend Benchmarking. 

Ironically, the poor performances might not spell all bad news for automated advice. The early results of new account openings suggest young, digitally savvy investors may have waited on the sidelines for a sell-off to fund accounts and take advantage of bargain-basement prices. 

“We’re seeing a massive surge in account openings,” said Eric Sandrib, research associate at Aite Group and author of the report. “We still could be in the very early innings, so who knows what’s going to happen for the rest of the year. The platforms have handled this crisis very well.”

It could also be a sign of larger mainstream acceptance of automated investing tools as clients become comfortable enough with tech platforms to bring the trillions of dollars expected to be managed digitally online.


Like other technologies that have seen spikes in tech adoption because of the global lockdown, could the pandemic have pushed more clients toward online platforms?

“We saw intense spikes in new investment account signups during the market volatility,” said Kate Wauck, a spokesperson for the robo-adviser Wealthfront. “These responses tell us that the millennial generation is much more educated on the market and market volatility than their parents or the baby boomers.”

The robo-adviser experienced a 50% spike in signups in a single day in February, she said. New York-based robo-adviser rival Betterment also experienced a significant jump in new users, with 25% more investors signing up year-over-year in the first quarter, according to a spokesperson.

The explosion in new users was so significant that a handful of digital advisers crashed as some of the worst of the recent volatility hit the markets. The discount trading platform Robinhood was inaccessible to its millions of customers for an entire trading day in March, shutting its users out of any potential gains. It wasn’t the only firm that went dark, either.

“There are a couple different factors that have played very nicely into digital advice platforms and to where they have strengths over traditional adviser services,” Sandrib said. As much of the world was under some form of lockdown or self-directed isolation, investors were unable to open accounts through traditional paths. The new realities of life in lockdown collided to create an explosion in new users, he said. 

“Now, in terms of account openings, we did see faster growth in larger platforms with brand names and one reason for that is because consumers were looking to trusted firms that they didn’t expect to have operational issues like some others have had,” Sandrib said. 

Fortunately, the uptick in new clients may serve as a way to replace lost revenue from declines in AUM-based fees. The new signups tend to be millennials and clients in this age bracket are generally attracted by the low fees and flexibility of a digital-first approach.

“It could really be a catalyst for the rapid growth that is widely expected on automated platforms,” Sandrib said. “It’s too early to tell, but all firms should be looking to enhance their digital offerings.”

Still, the Aite Group revised down its forecast for a five-year compound annual growth rate at digital firms to 32% through 2024 — from 37% just last year. Digital assets are still expected to reach $1.2 trillion by the end of 2024, according to the research.

While those projections seem lofty at best, the new normal caused by the pandemic and global lockdown orders will only push digital investing further into the forefront of wealth management.

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