The SEC’s Office of Investor Education and Advocacy issued an Investor Alert in May 2015 discussing the risks and limitations of online investment platforms and tools; including the use of Robo-Advisors. Robo-Advisors are the recent online investment platforms for fee-conscious investors. Millennials, who have grown up using computers trumping personalized relationships, are being lured by strategic marketing towards these low-cost, computer driven, generic models. In doing so, they may be overlooking the substantial deficiencies in the service delivered. As the DOL Ruling was rolling out last May, bringing clarity to the definition of a fiduciary and fiduciary practices, Robo-Advisors were being openly questioned by the SEC about whether a “Robo” could even be a fiduciary. The SEC confirmed that “Robos” cannot satisfy a fiduciary obligation to act in the best interest of the client as they fail to perform the initial and ongoing due diligence needed to adequately personalize advice allowing for appropriate investment decisions. Furthermore, investment options on Robo platforms are intentionally limited to a handful of ETFs to keep the fee structure low and may even include proprietary funds and do not change; no matter what is happening in the markets. Robos collect a few pieces of information, but that leaves the computer profile with very little data and certainly no understanding of the the needs, personal situation or goals of the investor. Answers to risk tolerance questions, even if asked by a CFP®, on a stand-alone basis are essentially worthless. It is impossible to gather the relatable goals, experiences, values and preferences and other relevant information about a person that are all vitally important when making investment decisions, without having several lengthy conversations.
Certified Financial Planning™ practitioners who are in the business of offering fee-only comprehensive financial planning and serve as an Investment Advisor may have years of experience translating into knowledge, insight and wisdom when offering guidance. They may have been engaged in hundreds of client meetings and created solutions for a variety of financial, estate and tax situations. CFP® exhibiting acumen are able to assist people in answering questions they are not able to answer themselves. Good financial counsel has the possibility of leading one to savings of tens to hundreds of thousands of dollars in the short term or over a period of decades in multiple ways resulting from making one decision over another. None of these opportunities can begin to unfold absent of human interaction.
Here are some primary benefits Advisory clients may derive from an ongoing advice relationship with a seasoned CFP® with whom they have constant access to:
Organization– helps bring order into your life
Objectivity – provides perspective leading to rational and discerning financial decisions
Proactivity – meaningful, familiar relationship committed to helping you prepare financially for the broad complexities of your life
Counsel– helps people address outside factors, short term circumstances and complex choices
Partnership – serves as a dedicated advocate and coach surrounding decisions that move you toward the best life possible with the resources you have; for today and tomorrow.
Consumers who sign up for an online generic investment model are simply not getting the same experience as an Advisory client partnered with a CFP® when paying a fraction of the cost. It is wisely recommended for the investor to know, in advance, what expectations of services they desire, and what deliverables they can rely on, when considering the investment experience and oversight they desire.
