The Robo-Advisors are quite resistant to COVID-19.

April 22, 2020

Article by Laurent Bodson, Head of LatAm Markets.

The current crisis is affecting almost every sector and country in the world. However, it is clear that some industries are more resilient and can even take advantage of this situation to generate additional business volumes. Robo-Advisors seem to fall into the latter category. Indeed, these digital platforms that support the financial savings of individuals (they manage around a trillion euros of investments worldwide, including 40 billion euros in Europe according to Statista.com) according to their risk profile and investment objectives seem especially well suited to the needs of confined investors.

On the one hand, the technologies used are specifically designed for autonomous digital experiences and, by definition, respect the social distances currently in force. Investors do not need to change their usage behaviour, which remains valid during this period of confinement, and they continue to interact with their advisors and support teams via the same communication channels as before. This continuity of use is (undoubtedly) comforting and it also increases their confidence in these new digital investment advisory offers.

Furthermore, the (nearly) automatic calculation algorithms used by the Robo-Advisors are devoid of emotions, which often penalize, especially in times of crisis, so-called traditional management. On the other hand, we have to admit that this has not always made it possible to anticipate the first market drops because the vast majority of the algorithms used by the Robo-Advisors are not yet capable of predicting this type of very singular health crisis and its indirect and, in this case, quite violent impacts on the international financial markets. In any case, even if the financial markets suffered heavy losses (up to -35% for the MSCI World and the S&P500, for example) between mid-February and mid-March 2020, the subsequent rebounds have already made it possible to recover a significant part (on average half) of the declines registered in the first quarter.

Of course, communication efforts to support investors in times of acute stress represent a new challenge for Robo-Advisors that some had never experienced before. Knowing that learning and artificial intelligence technologies do not yet manage the dialogue with investors on such sensitive subjects effectively enough, the operational teams of the Robo-Advisors are put to the test like all the others.

Finally, we note that the customer base (especially the most dynamic profiles) of the Robo-Advisors is currently taking advantage of prices that are considered relatively low to reinvest and partially compensate for the mechanical reductions in assets under management induced by the stock market crashes.

In this context of crisis, these various factors allow many Robo-Advisors to perform well and gain further credibility with more traditional players. Thus, we can probably imagine an acceleration of the digitalisation of these financial services in the coming months. However, and this will impact all providers of investment advice, the volatility observed on the markets over the last few weeks will certainly cool down a good part of investors to migrate more of their bank savings (which cause them to lose a little more of their purchasing power every day), to financial savings that remain, even today, more rational and optimal to make their financial assets grow.