The return of stomach-churning market volatility probably is the last thing financial services firms and financial advisors want to see as they head into the home stretch of RRSP season. But some good may come out of these market conditions: they allow advisors to prove their worth and will present the first real test of their “robo-advisor” rivals.
Global stock markets have been defying gravity for some time. Market-watchers have been warning about the risk of inflated asset prices and the prospect of a correction for months, if not years. Growing optimism about the strength of the underlying global economy appeared to have quelled those fears. But markets now are recalibrating.
Ultimately, for markets to begin pricing in the withdrawal of extreme monetary support and the reality of higher interest rates is a good thing. But the timing is less than ideal from the perspective of Canada’s investment industry. The chore of persuading clients to commit a bigger chunk of their assets to saving and investing becomes that much tougher when markets are volatile and the prospect of sustaining losses is so apparent. Yet, this is when advisors truly can earn their keep.
Preventing rash, emotional investing mistakes is one of the essential services advisors can perform for their clients. Calm counsel can be invaluable at a time when markets are at their wildest.
Although episodes of extreme market volatility are nothing new, this may be the first time that new models of investing – such as robo-advisors – will get their chance to demonstrate how well they weather volatility.
Critics have warned that these market conditions will expose the fundamental shortcomings of the robo-advisor model, arguing that robo-advisors will have a tougher time calming nervous investors and preventing harmful, emotional trading decisions.
So, this return to market turmoil may be the first real-world opportunity to test robo-advisors’ resilience. Their performance may go a long way toward determining how much faith the industry puts in robo-advisors in the future – and, ultimately, the outlook for human advisors as well.
Quebec to drop withdrawal limit for LIFs in 2025
Move will give clients more flexibility for retirement income and tax planning