Where Advisors Shine (and Robo-Advisors Don’t): Individualized Behavioral Coaching

“The dominant determinant of real-life, long-term investment outcomes is not investment performance, it’s investor behavior.”   — Nick Murray, author

When it comes to investing, almost everyone knows you shouldn’t let short-term market movements compromise your long-term goals.

Yet, on Monday, February 5, 2018, the Dow Jones industrial average experienced its largest point drop in history, and there were signs that some investors were beginning to panic. Two years without significant market volatility had caused some people to grow complacent and forget that markets can also go down.

If you invest through a computer-based relationship (robo-advisor) instead of a behavior management coach (human advisor) your Monday might have been especially frustrating.

Websites of two of the country’s largest robo-advisors — Betterment and Wealthfront — crashed as markets fell more than 4%. Similarly, The Vanguard, Charles Schwab, T. Rowe Price, and TD Ameritrade websites also experienced problems. The sites simply could not handle the sudden rush of people looking at their investments and trying to buy or sell. And of course, even if you could access these sites, there was little there to provide you individualized guidance or behavioral coaching.

On the other hand, I have yet to hear of an actual advisor who was not available for clients when they needed help the most. When you are in a people business like financial advice, you make sure you are accessible so you can provide perspective to help your clients stay calm and focused. Computers can do many things, but they cannot listen and provide feedback. They cannot provide clarity and insight on your worries and concerns. And they cannot reassure you that you are still on track.

Behavior plays such an important role in investing that Daniel Kahneman, Ph.D., was awarded the 2002 Nobel Prize in Economics for his groundbreaking research that lead to the field of behavioral finance.

Like behavior, volatility is an intrinsic part of investing. Markets will go up, and they will go down. But over time, they should go up more than they go down and potentially reward diversified, patient investors. Which is why we believe taking a long-term perspective, backed by a real person providing perspective on current events and your unique situation, will always be a winning combination.

 

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