Will 2016 bring a “run on the robos?”

How well are the online investment services prepared for a run on the bank type scenario?

How well are the online investment services prepared for a run on the bank type scenario?

Edit January 6, 2016: Added details that Personal Capital Advisors uses the custody services of Pershing Advisor Solutions LLC. Removed this tweet from a user of Personal Capital’s free dashboard, replaced with the Wealthfront tweet seen below.

I’m posting this today, as I’m genuinely concerned about what will happen when online investment services get flooded with redemption/account close requests.

“You STINK”

For example, take this tweet (note to readers in the future: if the embedded tweets below get deleted, I captured screenshots that I can post for posterity):

I stumbled across this tweet, as this person is upset about their portfolio performance.

So this got me thinking:

What happens when online investment services get flooded with redemption requests and account closures?

Run on the Robos

If an online investment service isn’t responsive to requests and complaints in a public forum (Twitter), how well will they respond once they are deluged with irate customers who are fed up and want out quickly?

“Sorry, we have a big backlog right now, but no worries, your money is still safe?”

¯_(ツ)_/¯

I don’t ever want to see businesses fail. I don’t ever want to see investors get into difficult situations regarding their investments.

But I fear that if a trickle of dissatisfaction with online investment services quickly becomes a flood, online services will get crushed.

Not picking on Personal Capital

Before you go, don’t assume that I’m picking on Personal Capital.

Yes, tweets above that are related to their company trigged my question of what happens when account closure rates skyrocket, but Personal Capital uses the custody services of Pershing Advisor Solutions LLC (it’s on page 5 of their Form ADV Part 2A Appendix 1).

Look, Pershing is a very large financial institution with nearly $1.5 trillion in global assets under administration and 75 years of experience.

200 account closures a day probably doesn’t make them sweat. 1,000 a week? That might be an average week. ACH, DTC, ACAT, they don’t bat an eye.

But for the startups that manage their own proprietary systems on top of Apex Clearing? Have they been tested?

I suppose I can contact them and ask, but what answer do you think I’m going to receive?

“Oh, Bill, thank you for bringing this to our attention, and as a result we found bottlenecks in our processes and have improved our ability to efficiently and accurately process account redemptions and closures.”

I don’t think so.

I’ve heard this before: “Once you go robo, you don’t go back.”

That, and I wanted the first Internet timestamp for “run on the robos.”

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2 Responses to “Will 2016 bring a “run on the robos?””

  1. Holly P. Thomas January 6, 2016 1:40 pm
    #

    Dang Bill, I was going to start recommending robos for my 20-something clients. I think you have a really really good point here…Whether their money is actually available to them is not the main point; it’s their perception that it is. So now you spoiled my ez answer. Sigh.

    • Bill Winterberg January 6, 2016 1:47 pm
      #

      Holly,

      I don’t think there’s any real threat of investors being financially harmed and not getting 100% of their money back.

      For me it’s a question of how adequate customer service and support will be when the automated investment services are inundated with requests.

      Twitter is like gasoline for bad customer service stories.

      If one bad story about pulling money out of an online investment service goes viral, I suspect it may trigger a vicious cycle where others simultaneously attempt to close their accounts and withdraw money, but encounter long hold times on the phone, no email support replies, and lengthy delays in redemptions.