By Thomas Kostigen
At 7 pm the world over people emerge from their homes and clap in honor of the healthcare workers who are working tirelessly to treat victims of the coronavirus pandemic. This is heart. This is soul. This is what it means to be an empathic human.
As people struggle with their “new normal” lives, fret about finances, and worry about how they can achieve their goals and objectives during this unprecedented global economic downturn, should they be turning to emotionless computers and artificial intelligence for counsel? By the numbers, it seems, yes.
According to Citywire, a global organization that helps investors and asset managers to connect, “many robo-advisors with ‘more unique strategies or holdings’ substantially outperformed during the coronavirus crash, robo-advisor evaluators found.”
Citywire cites a report by Backend Benchmarking that shows during the first quarter of 2020, robo Titan Invest had the best one-period return against the evaluator’s proprietary normalized benchmark that the firm has witnessed.
“This portfolio holds all individual equities and benefited from a tactical trade, buying a short S&P 500 ETF,” the report said. “This is a holding we have never seen in any of our robo portfolios before, but it proved quite timely.”
To be sure, not all robo advice was sound. One of the world’s largest robo advisors, Charles Schwab’s Intelligent Portfolios, for example, dropped 17 percent in the first quarter, trailing benchmarks and peers.
But numbers and automated investing programs, no matter how good or bad in terms of return, miss the bigger need in uncertain times: handholding. This is when financial planning becomes much more than a numbers game. This is when people need live discussions with human beings who can understand and offer words of comfort and understanding. There are too many unforeseen circumstances for which computers could respond. There are too many variables that may not register on a questionnaire or that can be tabulated in any mathematical formula. And that is why financial advisors exist. They can take a call, listen to concerns and render advice accordingly. They can wrangle and formulate the best answer to unknowns. They can read worry in a person’s voice and take that into account. Artificial intelligence can’t do that (yet).
Sure, outperforming stock market indices is welcome, but at what interpersonal price? No matter how hardened a person is, we all want a little tenderness when we’re a bit dazed and confused—knocked about by unexpected troubles.
This trait, which takes into account financial externalities, is most captured by socially responsible investment vehicles that look at environmental, social and corporate governance issues. Indeed, ESG portfolios posted the strong returns during the first quarter. According to Financial Advisor magazine, most robo-advisory SRI and ESG portfolios outperformed corresponding non-SRI and non-ESG portfolios from the same company on a net-of-fees basis during the first quarter and one- and two-year trailing time periods ending on March 31.
This means values are trumping value in the capital markets. And when it comes to financial advice, we should include “caring” in what we need to achieve success. Automation doesn’t readily come to mind in any good, long-term relationship.
Thomas Kostigen is a contributing writer to MyPerfectFinancialAdvisor, the premier matchmaker between investors and advisors. Thomas is a best-selling author and longtime journalist who writes about environmental, social, and governance issues.