COVID-19 uncertainty is causing massive swings in the stock market, showing the importance of three critical areas for wealth management firms: the performance of robo-advisor platforms; communication between advisors and their customers; and the importance of reliability and trust. Specifically:

  • Robo-advisors are being put to the test. Platforms like Schwab Intelligent Portfolios and Betterment need to show that their solutions can reliably manage downside risk and adjust investment allocations. Rebalancing and tax-loss harvesting are strengths that these firms highlight. However, the timing of these actions during the sell-off is critical, and the performance and reliability of the platforms is an area to monitor closely by customers and regulators.
  • Social distancing is forcing advisors to rethink how they communicate. Unlike prior periods of market volatility, COVID-19 prevents customers who are seeking reassurance and guidance from meeting their financial advisor at a branch or at their house. Wealth management firms need to embrace digital servicing capabilities to better stay in touch with their clients. For example, BNP Paribas Wealth Management has introduced digital services such as secure chat, videoconferencing, and a digital vault for document exchange as part of its new Client Experience program. Private collaboration platforms like these enable secure, real-time advisor-client interactions and portfolio reviews, which enhance the relationship when face-to-face meetings aren’t possible.
  • Robinhood’s outage shows the importance of reliability and trust. Robinhood’s all-day outage — during a stock market drop caused by falling oil prices and coronavirus uncertainty — was a significant setback for the stock-trading platform. Ultimately, reliability can make or break fintechs. Customers couldn’t access their Robinhood accounts and sell out of their positions during a market drop, which potentially exposed investors to significant losses. At the same time, incumbents like Fidelity and Schwab were reliable, showing customers that their platforms are trustworthy in times of crisis.

Read more on my thoughts on how this pandemic is impacting wealth management in COVID-19 Will Test Robo-Advisors And Other Fintechs While Accelerating The Digital Transformation Of Wealth Management (subscription required).