CEO Anton Honikman recently spoke to WealthManagement.com’s Sam Steinberger about Backend Benchmarking’s Q4 2018 Robo Report, and why he thinks performance-only ranking is the wrong measure for consumers.
Originally published in WealthManagement.com | by Samuel Steinberger | February 15, 2019
A longer track record means more performance metrics for robo advisors, but critics contend it paints a partial picture.
The latest comparison of robo advisors from Backend Benchmarking provides three-year trailing performance figures on seven automated investing platforms, while noting Q4 of 2018 saw a number of automated trades due to the S&P 500 Index’s 13.97 percent drop in the quarter. The Q4 2018 Robo Report declared that SigFig had the best three-year trailing performance in taxable accounts, followed by Schwab and WiseBanyan. FidelityGo was the top performer in two- and one-year trailing performance.
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Backend Benchmarking’s report has given investors and advisors a seemingly more transparent method of comparing automated investing platforms with each other, but it hasn’t been without its controversy. “Performance alone is the wrong lens with which to look at these services,” said Anton Honikman, CEO at MyVest. “If you think about performance only and ranking on the basis of performance, it’s entrenching that product-centric view of the world. Why is one robo better for another [customer] because the last six months’ performance was better?”
Analysis should focus on which robo is best for a consumer given his or her circumstances, said Honikman. The primary goals of automated investment platforms, and therefore the manner in which they should be measured, is how well the services help investors reach their goals and how do they help people save more, admittedly a significantly more subjective way of measuring a robo. “It’s going to be hard to measure the end impact,” he acknowledged.
The challenge of measuring customization for investors isn’t going away. “The client experience is quickly becoming, and overtaking, price and product as the key brand differentiator,” said Tom Nally, president of TD Ameritrade Institutional at the 2019 TDAI LINC conference. Perhaps that’s why Americans still prefer human advisors to robo advisors.
But with more entrants into the world of automated investing, there will be more options for consumers. Backend is adding coverage of 12 new offerings in its next report, which adds to its usefulness, said Ken Schapiro, founder of Backend Benchmarking. “As more time goes by and we have a longer track record of robo advisors’ performance and characteristics, we get a better picture of how they behave under different market conditions and over a longer period of time,” he noted in a statement.
A few basis points of outperformance will ultimately matter less to consumers than how well a tool works for the consumer, said Honikman. “The bigger the onset of personalization, the less relevant the performance ranking will become.” Investors focused on metrics, however, will still be taking a hard look at SigFig’s performance if they’re trying to maximize their returns.
Read the full article on WealthManagement.com.