Recently, I was asked about robo-advisors: You set up an account with a low minimum, answer a questionnaire, and an algorithm invests you in a basket of mutual funds, ETFs, and/or stocks.
The robos save money on phone reps, have a big marketing spend, and a neat-looking website.
But what if there’s a problem? A couple of years ago, when stocks were down 1,600 points, Bloomberg reported that the websites of robo-advisers Wealthfront Inc. and Betterment crashed. This is one of the MANY reasons robo-advisors will NEVER work for investors–NEVER. What a SHAM.
Also, it’s been my experience that investors want regular conversations about their life savings, especially when they’ve made money over a lifetime, and it would take another one to replace the losses.
Losing $500 on a company like Shopify might be a cheap education to help a young saver seek out a diversified portfolio with the help of a robot.
Investing your life savings for and during retirement might require a more personal touch, especially when you have a lot more to lose than money.
New problems with robo-advisers are being uncovered. The SEC is working to limit the conflicts of interest it sees arising in the robo-adviser industry. Lawyers Sandra Dawn Grannum, Jamie L. Helman, and Justin Ginter of Faegre Drinker write of the SEC’s concerns about robo-advisers:
One area of concern is the recent proliferation of robo-advisors and mobile apps that use them. For example, SEC Chair Gary Gensler specifically expressed concern about the conflict of interest that arises between investors and robo-advisor brokerage apps, stating “Artificial intelligence has complexity. But you have a basic, high-level strategic question: Are you optimizing just for investors, or are you optimizing also for the robo-advisor brokerage app? That’s a straight-up conflict.”
In other words, are the robo-advisers working for you? Or for themselves?
Action Line: When you want to talk to a real human with decades of experience in the investment business, I’m here.
