Tag Archives: Personal Capital

Personal Capital Releases “Retirement Paycheck” Feature: Flash Briefing for September 4, 2018

Posted on September 4, 2018 by in Flash Briefing

Here are the links to today’s top stories:

Introducing Retirement Paycheck from Personal Capital

RightCapital Launches Innovative Student Loan Functionality from iReachContent.com

Fuse 2018 Begins in Miami from Orion Advisor Services

Welcome to the FPPad fintech briefing, here are the top fintech stories you need to know today brought to you by Orion Advisor Services, helping advisors experience integrated independence so you can enjoy your business again.

Personal Capital Releases “Retirement Paycheck” Feature

Optimizing retirement income just got a little easier for some investors, as Personal Capital recently announced the introduction of a feature called Retirement Paycheck to its popular online Retirement Planner tool.
Retirement Paycheck is designed to optimize how money can be withdrawn from a mix of investment and retirement income accounts which includes pensions, 401(k)s, traditional and Roth IRAs, social security benefits, and even rental and freelance income, so you get the most dollars in your pocket and pay the least amount in taxes.

Retirement Paycheck is available exclusively to Personal Capital’s advisory clients which requires a minimum account balance of $100,000 dollars.

Right Capital Adds Student Loan Planning Capabilities

The financial planning software from Right Capital recently expanded its functionality to include capabilities around student loan repayment plans. Financial advisers using Right Capital with their clients will be able to illustrate a variety of student loan repayment scenarios based on different loan types, income-driven repayment plans, Public Service Loan Forgiveness, and more.

The student loan capabilities expand on Right Capital’s popular tax planning features with the ability to generate hypothetical 1040 federal tax forms for any client with a financial plan.

Fuse 2018 Begins in Miami This Week

And finally, I’m headed to Miami this week to be a judge once again for this year’s Fuse fintech innovation event hosted by Orion Advisor Services. This will be my fifth year judging the fintech submissions, and I’ll hope to capture some of the key innovations and commentary to include in my future flash briefings.

I’ll be posting videos from Fuse next week, so be sure to subscribe to the FPPad YouTube channel so you don’t miss a thing.

I’m Bill Winterberg, and those are your fintech headlines for today from FPPad.com. Check back in with me later for more fintech news.

Brokerage websites go offline during market volatility: Flash briefing for February 7, 2018

Posted on February 7, 2018 by in Flash Briefing, Technology

Here are the links to today’s top stories:

Fidelity Reports Web Issues After Robo-Adviser Sites Crash

Personal Capital Adds Socially Responsible Investing to Serve Rapidly Growing Client Base

What’s new from AdvisoryWorld, 2018 Fintech Update from YouTube

Welcome to the FPPad fintech briefing, Here are the top fintech stories you need to know today.

Brokerage Websites Offline During Market Volatility

With huge increases in market volatility this week, brokerage customers have experienced unresponsive websites from some of the largest providers like Fidelity, Charles Schwab and Vanguard as well as smaller automated investment services Betterment and Wealthfront. According to Bloomberg, brokerage companies acknowledged that customers did lose access for short periods of time on Monday, but as trading activity subsided, account access was restored to all customers by Tuesday morning.

Personal Capital Adds Socially Responsible Personal Strategy®

In socially responsible investing news, Personal Capital is hopping on the responsible investing bandwagon with the addition of its new Socially Responsible Personal Strategy®. The strategy screens US equities based on environmental, social, and governance factors powered by Sustainalytics data to generate investment strategies that align with customers’ socially responsible preferences. Personal Capital joins Betterment, Wealthfront, Motif Investing, OpenInvest, and many others to help investors align their portfolios with their socially conscious preferences.

AdvisoryWorld Update on ACQUIRE Solution

And how do you stay up to date on what’s new this year in fintech? Well if you visit the FPPad YouTube channel, you’ll see the first batch of dozens of interviews filmed with fintech solution providers at last week’s National LINC conference, including a conversation about an updated from Advisory World called ACQUIRE. Here’s AdvisoryWorld COO Mike Wilson with the details.

We continue to work on what we refer to as ACQUIRE, which is our digital onboarding component. With that, advisors are able to embed links on their websites and social media accounts that helps get new business through the doors. It’s a questionnaire that points, again, to a model.

More interviews are being uploaded to the FPPad YouTube channel every day, so visit fppad.com/flashbriefing to get all the links to today’s top stories.

I’m Bill Winterberg, and those are your fintech headlines for today from FPPad.com, be sure to check back in with me later for more fintech news.

Betterment introduces Plus and Premium hybrid advice plans featuring in-house CFP® professionals

Posted on January 31, 2017 by in Technology

The lede!

  • Betterment adjusts its default fee structure to 25 basis points for accounts of all sizes for what is now called Betterment Digital (the 35bps, 25bps, and 15bps tiers are gone)
  • Betterment customers who formerly qualified for the 15 basis point tier will see their fees increase 67% to 25 basis points. Some customers are not pleased
  • New Plus and Premium plans are offered that introduce hybrid advice engagements from human advisers for an additional fee
  • Betterment Plus includes an annual planning call with the in-house adviser team and support via email. Betterment Plus pricing is 40 basis points and requires a $100,000 account minimum
  • Betterment Premium include unlimited contact with the in-house adviser team via phone and email. Betterment Premium pricing is 50 basis points and requires a $250,000 account minimum
  • All Betterment plan fees are capped, charged only on the first $2 million of a customer’s balance.
  • Betterment is introducing the Betterment Advisor Network™, launching with roughly ten advisers who have complete the Betterment vetting process, all of whom must hold the CFP® certification
  • There is no fee to be included in the adviser referral network
  • Betterment receives no referral fees for directing customers to any specific adviser in the referral network
  • Customers who work with an adviser in the Betterment referral network pay a fee of 25 basis points on their assets in their Betterment account. The adviser can set an additional fee on top of Betterment’s fee for services provided

Betterment introduces hybrid advice plans with access to in-house CFP® professionals

Betterment announced today that the company will introduce hybrid advice offering with access to an in-house team of financial advisers.

For the full details from Betterment, see the post below from the Betterment website:

 

The Best of Both Worlds: Smart Technology + Financial Experts

Fee Fallout

One unfortunate consequence of the new 25 basis point pricing structure is the elimination of the 15 basis point tier that formerly applied to accounts over $100,000.

Reaction on Twitter was swift, as these customers will see their fees increase by roughly 67%.

Fee Parity Between Retail and Advisor Platforms

Despite the frustration of customers who formerly qualified for the 15 basis point tier, Betterment Digital’s pricing establishes parity with the pricing offered in the Betterment for Advisors (formerly Betterment Institutional) service.

Since the Betterment for Advisors introduction, I had been critical of the conflict the different pricing tiers presented for advisors who chose to implement Betterment for Advisors for their clients.

I often questioned how an adviser could meet his or her fiduciary obligation to clients with over $100,000 in assets, as that client would pay fees of 15 basis points using a “retail” Betterment account, where a minimum fee of 25 basis points would be charged on a Betterment for Advisors account, for asset management services that I felt were essentially equivalent.

Today, that fee disparity, and the fiduciary quandary, is eliminated, but at the expense of raising fees for customers who qualified for the former 15 basis point tier.

Betterment undercuts Personal Capital

One other observation is Betterment Premium now enters the competitive hybrid advice market, a space dominated by Vanguard Personal Advisor Services, that is also occupied by Personal Capital and the Schwab Intelligent Advisory offering scheduled to debut sometime in the first half of 2017.

Betterment Premium is more expensive than the 30 basis point fee Vanguard Personal Advisor Services and the 28 basis point fee from the upcoming Schwab Intelligent Advisory, but at 50 basis points, the service undercuts Personal Capital’s current 89 basis point pricing.

 

Balance Financial to shut down January 31, 2017

Posted on December 29, 2016 by in Technology

In an email to current users, Balance Financial, a personal financial management app acquired by TaxAct in 2013, announced it will shut down operations on January 31, 2017.

See the email announcement below:

Balance Financial shutdown email announcement sent to users

Balance Financial was an alternative to well-known personal financial management apps, or PFM, such as Mint.com and Personal Capital that performed account aggregation to deliver a consolidated dashboard of a user’s financial accounts.

In the wake of Intuit’s decision to discontinue its Financial Data APIs, any PFM apps using Intuit’s aggregation had to migrate to other account aggregation options (See How Intuit’s account aggregation shutdown may impact the fintech solutions you use)

One provider, Guide Financial, shut down as a result of the change combined with other changes in its business model (See Guide Financial to shut down operations on October 11.)

I listed Balance Financial as a potential alternative for Guide Financial users, but quickly removed it since I had no success in connecting with the company for a statement regarding support for the application in the near future.

Alas, it seems that TaxACT is not interested in supporting Balance Financial beyond January 31, 2017.

I suspect that the number of advisors using the Balance Financial app is very low, likely below a dozen, so few are likely to be affected by the shutdown. What’s less clear is how many retail customers Balance has and what alternatives they find offer similar functionality and pricing to that of Balance.

Have any tips? Feel free to contact me.

FPPad Bits and Bytes for December 16, 2016

Posted on December 16, 2016 by in Bits & Bytes

On today’s broadcast, Schwab announces its Schwab Intelligent Advisory services, Finicity raises $42 million for account aggregation, Envestnet|Tamarac rolls out Yodlee, and more.

So get ready, FPPad Bits and Bytes begins now!

(Watch FPPad Bits and Bytes on YouTube)

Today’s episode is brought to you by eMoney Advisor, featuring a new Client Onboarding process as a part of their leading client experience. Onboarding replaces printed fact-finding documents with an automated, digital workflow, allowing clients to populate their own personal financial information online from anywhere — adding an extra layer of convenience and efficiency to your service.

eMoney Advisor

For more information on eMoney’s Client Onboarding tool, visit fppad.com/emoneyonboarding today.

Here are the links to this week’s top stories:

Schwab Announces Schwab Intelligent Advisory™ from Charles Schwab

[Now the big story this week is news from Charles Schwab, as the largest custodian for RIAs announced plans to introduce Schwab Intelligent Advisory™ in the first half of 2017. In the press release, Schwab’s Neesha Hathi said that Schwab Intelligent Advisory is designed for emerging or mass affluent investors who don’t have complex financial situations, features access to CFP® professionals who are available by phone and videoconference, and charges fees of just 28 basis points (disclaimer!) with a maximum of $3,600 a year.

Now this isn’t as much of a technology story as it is a marketing story, because the technology for Schwab Intelligent Advisory portfolio management is that same that powers Schwab Intelligent Portfolios for retail investors and Institutional Intelligent Portfolios™ that you can use in your own RIA if you custody assets with Schwab.

But, how does that make you feel knowing you’re using the same technology that your custodian will use to offer its own human-assisted advisory services to mass affluent clients?

So I was asked if I thought RIAs should be concerned about this announcement, and I said yes, RIAs should absolutely be concerned. Look, when it comes to getting a prospect to buy what you do, most of the time it’s not what you say, it’s what people hear, and I’ve gotta admit, prospects are hearing comprehensive plans by CFP® professionals with 24/7 access, all for 28 basis points (disclaimer!)? Unless your prospects hear something far more different and compelling from you, I just can’t believe they’ll be willing to pay more than three times the price of Schwab Intelligent Advisory for your services.

And I’m not ignoring Vanguard’s Personal Advisor Services, which also employs hundreds of CFP® professionals and charges 30 basis points (thank you!), with more than $40 billion on the platform and growing. A few of you have told me that you’ve lost clients to Vanguard’s service, which is also likely going to happen with Schwab Intelligent Advisory, but the difference with Vanguard is that they’re not also soliciting your custody business while simultaneously soliciting mass affluent clients.

But the executives at Schwab surely know what they’re doing, and I think they know their target RIA client pretty well, which I suspect largely enforces client account minimums of a million dollars or more, so Schwab Intelligent Advisory really isn’t a competitive threat, because it’s not intended for the high-net worth clientele targeted by the largest RIAs that generally choose to custody with Schwab.] Charles Schwab today announced plans to expand its suite of wealth management and advisory services with the launch of Schwab Intelligent Advisory, a hybrid advisory service that combines live credentialed professionals and algorithm driven technology to make financial and investment planning more accessible to consumers.

Finicity Secures $42 Million in Funding to Accelerate New Solution Development from Finicity

[Now one of the things not mentioned about Schwab Intelligent Advisory is account aggregation, which is the focus of my next two stories, starting with Finicity, as the company announced it secured $42 million in a new funding round led by Experian.

This is the first time I’ve mentioned Finicity in my broadcast, but I have a popular post on FPPad from March of this year when Intuit announced it was shutting down their Financial Data API and selected Finicity to offer façade APIs to developers who needed to transition off of Intuit’s aggregation.

In the wake of that change, Guide Financial, which was acquired by John Hancock in the summer of 2015, shut down back in October, but other than that I haven’t heard of other significant disruptions among other tech providers.

What remains to be seen is whether or not Finicity makes an attempt to offer aggregation services to advisers, either directly or by partnering with existing technology providers, so if you have some intel you can share with me, I’d appreciate the heads up, otherwise advisers can continue to engage aggregation providers such as Morningstar ByAllAccounts, Aqumulate, eMoney, Quovo Wealth Access, and Envestnet|Yodlee.] Finicity, a leading provider of real-time financial data aggregation and insights, has secured $42 million in new funding. Experian, a global innovator in consumer and business credit reporting, led Finicity’s Series B round, along with a venture debt facility provided by Bridge Bank and participation from existing investors.

Tamarac Incorporates Yodlee’s Data Aggregation into Advisor Xi® from PRNewswire

[And speaking of Envestnet|Yodlee, my last story highlights the rollout of Envestnet|Yodlee to the Envestnet|Tamarac platform. While at the Schwab IMPACT conference in October, I had a chance to connect with Brandon Rembe to get a quick update on what this new feature means for advisors.

I’ve linked the full interview over here and in the description below, but let me just finish by saying that technology like account aggregation is still a bit of a differentiator for you, since it helps you know as much as you can about your client’s total financial picture, and not just what clients have at one custodian, such as, ohhh, Charles Schwab, which is a complete coincidence.] Envestnet | Tamarac now enables advisors to add assets and liabilities to households in Advisor View™, helping them expand their focus and deliver more holistic advice to clients.

A few parting words:

Before I sign off, you need to know that I have some big plans in the works for FPPad content in 2017. I’m not going to go into the details right now, but what you will notice is that this broadcast, the almost-weekly videos, will be taking a bit of a hiatus for a few months.

But don’t worry, I’ll still be providing my independent insight on financial technology that thousands of you count on as you navigate what I feel is an exciting, unprecedented opportunity in the business of financial advice.

So connect with me anytime on Twitter, I’m @billwinterberg, or sign up for my email newsletter at fppad.com/subscribe

Here are the stories that didn’t make this week’s broadcast:

Scottrade® Advisor Services Clearing Paths for Advisors with New Tech Agreements from Scottrade

Scottrade® Advisor Services now has agreements with two leading industry solutions providers to help RIAs run their day-to-day routines. Scottrade signed agreements with Morningstar, Inc. and Orion Advisor Services, LLC to offer their services at a discount.

Yahoo Says 1 Billion User Accounts Were Hacked from NY Times

Yahoo, already reeling from its September disclosure that 500 million user accounts had been hacked in 2014, disclosed Wednesday that a different attack in 2013 compromised more than 1 billion accounts.

A Note From Chris O’Neill about Evernote’s Privacy Policy from Evernote

We recently announced an update to Evernote’s privacy policy that we communicated poorly, and it resulted in some understandable confusion. We’ve heard your concerns, and we apologize for any angst we may have caused.

Introducing Asset Classes from Riskalyze

Advisors have been asking for better ways to visualize portfolio allocations, and we’re excited to announce today that we’re rolling out Asset Class coverage for all portfolios in Riskalyze!

Personal Capital Adds $1.5 Billion in AUM and Closes $100 Million in Financing in 2016 from PRNewswire

Personal Capital, the leading digital and professional advisor based wealth management firm, today announced that IGM Financial Inc. has completed the firm’s Series E round. Additionally, Silicon Valley Bank has extended $25 million in credit to the firm.

Watch FPPad Bits and Bytes for December 16, 2016

Watch FPPad Bits and Bytes for December 16, 2016

FPPad Bits and Bytes for January 15

Posted on January 15, 2016 by in Bits & Bytes

On today’s broadcast, Jemstep gets acquired by Invesco, rumors fly about a Snapchat robo advisor, FutureAdvisor links up with its first bank, and more.

So get ready, FPPad Bits and Bytes begins now!

(WatchFPPad Bits and Bytes on YouTube)

Invesco acquires Jemstep, a market-leading provider of advisor-focused digital solutions from PRNewswire

[This week’s top story comes from Jemstep, as the B2B online investment platform was acquired by Invesco, the $800 billion dollar asset manager based a stone’s throw away from my studio right here in Atlanta.

Terms of the deal were not disclosed, Jemstep’s leadership will stay onboard to run the Invesco subsidiary, and for now, the company says there won’t be any changes to existing partnerships, custodians, or asset availability in model portfolios.

Ignoring B2C acquisitions of FutureAdvisor and LearnVest, the last twelve months have seen John Hancock acquire Guide Financial and Envestnet acquire Upside.

So who are the independent B2B providers left? I see Autopilot, Trizic, Oranj, Vanare, Betterment Institutional, Motif Investing, and to some extent, the roll-your-own open source platform from Wealthbot.] Invesco Ltd. has acquired Jemstep, a market-leading provider of advisor-focused digital solutions.

Social media firms make ETF push from Reuters

[But hold on! Sending shockwaves in the retail robo space is Snapchat, as rumors were flying this week that the ephemeral chat app might introduce it’s own investment service to its 100 million active daily users.

Uh, let me explain my thoughts in a brief demonstration… Get it, jump the shark?] Snapchat is understood to be at the front of a queue of tech firms developing Robo-Advisory technology – which uses algorithms to help users develop and implement customized investment strategies for retirement planning.

BBVA Compass Teams Up With Robo FutureAdvisor from Forbes

[But wait, there’s more! In its first move after being acquired by BlackRock, FutureAdvisor announced it is partnering with BBVA Compass to roll out the automated investment tools to the bank’s nearly 700 branches in the US.

Bank customers will get access to FutureAdvisors’ digital investment management for the standard fee of 50 basis points, and you can probably bet that new accounts opened up with be held with BBVA’s broker-dealer affiliate, which is how the bank capitalizes on the partnership.] BBVA Compass, the Sunbelt subsidiary of the Spanish banking giant, has announced it will partner with FutureAdvisor to offer its customers digital investment management, popularly known as Robo Advisors. It is the first major bank to sign on with FutureAdvisor since the advisory firm combined forces with BlackRock, the giant asset management company, last year.

Robo Adviser Wealthfront Begins to Offer Free Portfolio Reviews from WSJ.com

[And if you’re not sick of robos by now, let me add news from Wealthfront who this week released a free Portfolio Review service to show investors how bad their current portfolios are and urge them to save a boat load of money by switching to Wealthfront. Whoops, did I say that out loud?

This concept is nothing new, as Personal Capital has offered a similar portfolio analyzer since 2011, and FeeX has been doing it since 2012, but here’s the deal. These VC-backed companies are spending tons of money to target your clients and prospects to get them to try out this tool, and of course, they’re going to tell clients they have suboptimal allocations and are paying high fees to their advisor.

So, expect clients to bring up fees, allocations, and performance in your next meeting, and you need to have a strong answer in the form of your value proposition, which is all the added advice, guidance, and behavior management you deliver that the automated services are incapable of providing.] In a bid to attract more assets, Wealthfront Inc. is joining other robo advisers in providing free advice to investors about their accounts at other financial institutions.

Here are stories that didn’t make this week’s broadcast:

New Laserfiche Release Aims to Improve ECM from CMSWire

Laserfiche just released version 10 of its enterprise content management system (ECM). Speaking at the Laserfiche Empower 2016 Conference in Long Beach, Calif., Laserfiche President Karl Chan said the new version is designed to supercharge content-driven business processes, enabling enterprises to redesign the flow of information throughout the enterprise.

LastPass Revamps Its Interface, Adds Emergency Access and Better Sharing from Lifehacker

LastPass is one of the best password managers around. Today it gets a bit better with an improved interface and a handful of new features.

Dashlane 4 Makes Changing Passwords on Hacked Sites Easier, Adds a New Interface, and More from Lifehacker

Dashlane is one of our favorite password managers, and today the service updated with a new, consistent interface across all devices, an updated “password changer” that lets you change passwords on a site without even visiting it, new languages, and more.

 

Watch FPPad Bits and Bytes for January 15, 2016

Watch FPPad Bits and Bytes for January 15, 2016

Will 2016 bring a “run on the robos?”

Posted on January 6, 2016 by in General

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.”

Robo advisor is a perfect moniker and here’s why

Posted on June 9, 2015 by in General

tl;dr: Algorithms are incapable of giving financial advice, so the oxymoron “robo advisor” is a perfect moniker. Know what you’re getting (and not getting) from automated investment services.

“I am tired of the whole robo thing,” says Motif Investing CEO Hardeep Walia.

Personal Capital CEO Bill Harris bemoans, “We are not a robo advisor.”

Wealthfront CEO Adam Nash retorts, “New tech doesn’t always fit neatly into a bucket.”

Cry Me a Robo River

To the automated investment services, I say,

“Boo hoo.”

NOW these services are beginning to experience how it feels when others, right or wrong, control the conversation about their business.

Most journalists, reporters, TV anchors, correspondents, bloggers and more don’t really know what makes any of the automated investment services different from one another, so most simply package them up into one catch-all term “robo advisor.”

Let’s face it: “robo-advisor” makes for great click bait. If it didn’t work (and generate clicks and eyeballs), editors and producers would stop using it. (You clicked to land here, didn’t you?)

But please, asking everyone to stop using “robo advisor” because it misrepresents what you do or somehow marginalizes your service in some way?

I submit to you Exhibits A and B.

“You don’t need that guy,” gloats Wealthfront’s ad.

Sure, because most financial professionals out there are just glorified psychics, spiritualists, or stock market prognosticators whose only tool for financial advice is a crystal ball!

Please.

The financial services industry has seen this marginalization long before automated investment services arrived.

Living In Glass Houses

The fiduciary financial professionals should be just as upset about this gross characterization of fortune tellers as the automated investment service providers are about the term “robo advisor.” (people who live in glass houses…)

“Stop comparing us to fortune tellers!”

“We are not personal psychic advisors!”

Perhaps Wealthfront paints with too broad a brush. Ok, so here’s Exhibit C:

Wealthfront: Don't Pay For Expensive Financial Advisors

Wealthfront: Don’t Pay For Expensive Financial Advisors

See? “Don’t pay for expensive financial advisors.”

Why not?

Because Wealthfront is the end-all-be-all service that investors need? Because Wealthfront does the exact same thing all fiduciary financial advisors do? Because all your financial needs are met by Wealthfront’s software?

Ask a Question 100 Times…

Go ahead, go to any automated investment service website right now. Wealthfront. Betterment. Future Advisor. Even the anti-“robo-advisor” Personal Capital. (*read my note below)

Fill out their questionnaire. Complete a free “Investment Checkup.”

What is the answer you get?

The answer from ANY of these services is ALWAYS to invest.

ALWAYS.

There is no Plan B, no backup option, no alternate strategy.

There’s no, “You really should first pay off your high interest credit card balances.”

No, “You should save up an emergency fund where you can access the money quickly.”

No, “You should create a will and advance medical directives first in case something were to happen to you.”

But ask automated investment services a question 100 times, “What should I do with my money?” and the answer is always going to be the same:

Invest in a diversified portfolio of low cost ETFs.

It’s the only answer these services have. There’s nothing else.

It’s not financial advice. It’s not wealth advice.

It’s barely investment advice.

It’s an investment recommendation. The output of a calculator.

Sophisticated or not, automated investment services are ALWAYS going to recommend investing your money.

There simply is no other result to offer. The algorithms today are incapable of suggesting anything but investing.

So Why Robo Advisor?

So why robo advisor as a moniker?

Because it is a oxymoron, a name that contradicts itself.

Algorithms, software programs, aka “robots” are incapable of making judgment calls and evaluating emotions or feelings in the calculation process.

Robots can’t give advice.

Robots can only decide based on ones and zeroes. True or false.

Sure, an algorithm’s answer can be associated with a level confidence (recall IBM’s Watson playing Jeopardy), but each discrete answer is associated with a level of confidence based off of a set of discrete factors evaluated in the calculation process.

An algorithm’s output is a result. Functions return arguments.

But don’t call that advice.

Know What You’re Getting

As with most decision-making processes, there’s often a big difference in what you can do and what you should do.

What is important to you? How does a decision make you feel? How do you prioritize your goals?

Can your entire life, your goals, your dreams, your aspirations be captured in a four question survey? A ten question survey? Even a hundred question survey?

For automated investment services to survey the market and say “Hey, we can improve investing outcomes by building a software program that does everything on the cheap!”

The questionnaire is only part of the advice process, it is not the start and finish.

And then there’s the talk of disruption, mainly coming from the media (I don’t recall any of the automated investment services specifically saying they intend “to disrupt” the financial services industry).

What industry are automated investment services attempting to disrupt, anyway?

Vanguard, the mutual fund giant, has been offering diversified, low-cost investment products and services quite successfully since the 1970s.

Just remember that the next time you consider the services of an automated investment service, know what you are getting.

Do your homework.

You are getting the results of a calculator.

The calculator is programmed to give an answer.

Not advice.

Not from a robot.

Don’t assume that the answer you get is the best answer for your situation.

Who you are as a person cannot be summed up in an online questionnaire.

 

*Note: Personal Capital toes the line on the robo advisor definition. Users complete the Investment Checkup and receive a target asset allocation illustration based on answers to the short questionnaire. However, specific mutual funds and ETFs are not recommended, so it’s not explicit. Users do get a basic automated investment allocation recommendation with no human intervention, but it’s up to the user to connect each recommended asset to a specific mutual fund or ETF to purchase. Users who want specific fund and ETF recommendations must engage Personal Capital for traditional investment advice rendered by human advisers and pay Personal Capital’s standard fees. This formal engagement is not robo advice.