On the morning of June 24th, the world reacted to the stunning news that the UK would be leaving the European Union. As equity markets extended their losses, the world’s largest robo-advisor, Betterment, took a unique approach to managing market volatility. They did nothing. The firm, which manages over $5 Billion, locked up investor capital and restricted all trading. Clients were unable to buy or sell positions and, perhaps the most interesting part of the story, were not notified that such as restriction was in place. Betterment’s retail clients were unaware of this self-imposed halt in trading and any orders were simply delayed until the company felt it was appropriate to start executing trades again.
In this article in the Wall Street Journal, Betterment’s CEO explains why his company took this course of action. Ultimately, he argues, the company was trying to protect clients from being their own worst enemy by over-reacting to market events. The article also interviews Massachusetts securities regulator, William Galvin, who raises concerns about this practice as well as the ability of robo-advisors in general to act as proper fiduciaries of their clients’ money.
Our investment team at Carlson Capital Management approached the morning of June 24th with a different mindset. We took the approach that our advisors and clients have worked hard to determine the appropriate risk tolerance for their portfolios and therefore we should be working hard to maintain that desired market exposure. This is why, rather than sit on our hands the morning after Brexit, our team was working hard to review our clients’ portfolios and make any necessary trades to maintain the appropriate market exposure. Rather than paint every client with a broad stroke, and make decisions as if every client is reacting in the same way, we believe that each client needs to be treated as the unique individual that they are.