The Wealthbase Blog

10 Questions Consumers Should Ask When Choosing a Robo-Advisor


Are you ready to hire a robo-advisor to give you synthetic advice and be guided along the investment road to riches? Robo-advisors are catching on with consumers, with good reason. For basic services they charge fees as low as .15 percent of your managed assets. Set against a typical industry practice of financial advisors charging a 1% fee for assets under management, robo-advisors are giving human financial advisors - especially those who don't digitize their practices - a run for their clients’ money.

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Are you ready to hire a robo-advisor to give you synthetic advice and be guided along the investment road to riches? Robo-advisors are catching on with consumers, with good reason. For basic passive investing services they charge fees as low as .15 percent of your managed assets. Set against a typical industry practice of financial advisors charging a 1% fee for assets under management, robo-advisors are giving human financial advisors - especially those who don't digitize their practices - a run for their clients’ money.

Silicon Valley is developing an armada of robo-advisors at your service. Well-funded companies like FutureAdvisor, Jempstep, Betterment, Wealthfront and others are creating robo-advisors that connect with consumers, changing the game of financial services. Wealthfront's and FutureAdvisor's website messaging speaks volumes. Both use an image of a laptop or tablet displaying portfolio graphs and piecharts set atop a wood table. Wealthfront's table is in a conference room (pictured), with the introduction, "Meet Your New Financial Advisor." FutureAdvisor's table is evidently at a lumberyard with the introduction, "Meet Your New Online Advisor." Lest you channel Seinfeld and ask, “Who are the ad wizards who came up with this one?” know that these companies are growing fast. Wealthfront’s robo-advisors, for instance, have $400,000,000 in assets under management and the company is adding top-tier talent to its ranks.

Robo-advisors are colonizing the wealth management landscape, so repress your robophobia and consider choosing one. Before you rush out and experience the man-machine thrill of meeting a robo-advisor and handing over your portfolio for it to manage, do your homework. Interview and vet the right one to ensure there's a good fit. Good chemistry between you and your robo-advisor is important. A well-programmed robo-advisor can be your trusted financial partner and even a good friend with its steady, Vulcanesque sensibility in difficult economic times.


Consumers: Here are 10 questions to ask your prospective robo-advisor to ensure you and it are off to a great artificial relationship.

Question #1: What services do you provide as a robo-advisor?

When you have a chat with a robo-advisor, make sure you share with it what your needs are now and in the future. This will determine whether to select a robo-advisor who simply offers basic passive investing and portfolio rebalancing or one that offers enhanced, comprehensive financial planning around retirement, estate, insurance, tax planning services, and alternative investments. The latter type is much harder to find, but the former may be all you need. So ask your prospective robo-advisor’s services and be sure to inquire about comprehensive financial planning if you’re at a station in life that requires this.

Question #2: How many colors can you show in your pie charts that depict my asset allocation?

Robo-advisors are not only known for their low fees for basic services but they also give their clients stunningly beautiful pie charts to understand and visualize investable assets. The pie chart is the robo-advisor's signature tool in emotionally connecting with you as a client, so ensure you choose a robo-advisor who renders elegant colors and hues that are right for you. Pie chart design matters, and some robo-advisors are much better at it than others. Ask for a sample pie chart printout from your prospective robo-advisor and tape it to your refrigerator at home to see the reactions from your friends and family.

Question #3: Can we schedule an in-person meeting?

Your robo-advisor may be reluctant to meet you at first. Some are socially reserved and geeky. “Eye Contact” and “Handshake” and “Cocktail Party Mode” are priority features on the product roadmaps of most robo-advisor makers in the near future. A robo-advisor might initially avoid meeting you face-to-face but will definitely request that you fill out web-form questions and connect your online bank accounts to its maker’s firm, all the while teasing your financial planning hunger with pie chart illustrations. Be careful here: the dynamic of live, in-person conversations that go beyond database answer inputs often bring out the nuance of your financial situation with important details of your profile as an investor. Limited web form responses can lead to “suitability” problems from FINRA’s point of view, in the event of financial loss. In a recent Wall Street Journal article, Grant Easterbrook, a senior research associate at Corporate Insight, said of robo-advisor signup forms, “These questionnaires do a horrible job of understanding what your financial situation is.” In-person conversations can also start an important friendship between you and your robo-advisor, so ask for the face-to-face meeting. If your robo-advisor has been upgraded with the “Small Talk” feature, it’s a breeze to get acquainted and start the authentically inauthentic relationship.

Question #4: Can you tell me the story behind an investment thesis?

Human experience is powered by stories and story-telling drives the investing world. From the late 1700s meeting place under a buttonwood tree at 68 Wall Street to corporate quarterly earnings conference calls to modern-day financial planning seminars, humans have always gathered to share stories in the sphere of investments. Of course, Warren Buffett and Bernie Madoff are examples of story-tellers. You get the good and the bad stories with humans, mostly good. But with robo-advisors, it’s another story, or lack thereof. Ask your prospective robo-advisor if it can tell the story behind an investment thesis, a financial strategy, or what it did last night. Story-telling is elemental for humans to make sense of the world and have a sense of trust, and to date, robo-makers have hard a hard time programming their teams with story-telling capabilities. Like dolphins, robots communicate with each other, but not yet with humans in telling stories.

Question #5: What is your investment instruction?

A common question when vetting a human financial advisor is, "What is your investment approach?" But the word "approach" implies human thinking, decision-making, skills, processes, and worldly awareness applied to human investing strategies, and this is, like, so old-school in roboland. Robo-advisors don't "think" the way humans do (though some scientists would quibble with that assertion, but we’ll leave the philosophical considerations of free will, consciousness, and identity out of this for now). They're algorithmically programmed - instructed - to offer investing choices and transact in passive investing strategies within the framework of Modern Portfolio Theory. The new, digitally correct question is, "What is your investment instruction?" Simulated self-awareness for robots is still a few years off and if it does answer the question you might not understand it. But at least you're trying to get on the same page with your robo-advisor in the spirit of fostering good robo-relations and getting to personally know each other. So ask the question about investment instruction and go through the motions; it's what the robo-advisor does all day long.

Question #6: Is the algorithm that animates you regulated by any entity?

Unlike human financial advisors, whose professional and ethical imperfections require regulations, robo-advisors and the algorithms that power them aren't regulated by the SEC, State, or FINRA rules. The firms where a robo-advisor works may be regulated, but the robo-advisor itself isn't, at least not yet. As robo-advisors annex some of the wealth management territory (and increasingly take on managerial positions in their own development firms), you'll want to know what government regulations affect your robo-advisor's ability to make its recommendations. Also, keep in mind that all robo-advisors and their algorithms could be regulated someday by a government agency or industry association.

Question #7: What licenses, credentials, or other certifications do you have?

The confusing, alphabet soup of fancy initialized accreditations and certifications that plague humanoid advisory services such as Certified Financial Planner (CFP), Chartered Financial Analyst (CFA), Chartered Investment Counselor (CIC) etc., etc., etc., is not yet a problem in the robo-advisory industry. This is partly due to the early stages of the market and wide open field for the robos to ply their trade with compressed pricing. No need to differentiate with acronyms - yet. We have heard whispers of an industry consortium to administer the education, testing and monitoring of robo-advisors under the designation, “Certified Financial Robot”, or CFR. FINRA presides over designations only by those financial professionals who are licensed to sell securities, and this excludes many financial planning professionals. In that robo-advisors evidently do neither, we’ll wait and see on this one. But still ask the question about your prospective robo-advisor’s credentials in the context of comprehensive financial planning beyond piecharting and passive investing.

Question #8: Do you have a clean record?

Deception exists. Humans have Bernie Madoff. Robots have the automaton who writes the Facebook Terms of Service "agreement." It’s important to do a background check on the robo-advisor you’re considering hiring. You need your robo-advisor to have an abiding sense of commercial honor. Keep checking in with “Broker-Check,” an online service to look up infractions on all types of advisors. ("Algo-Check" might also be coming soon.)

Question #9: How much contact do you have with your clients?

Robo-advisors are machines when it comes to keeping in touch with clients, because, well, they’re machines. You’ll never miss a birthday wish from your robo-advisor and many people find this touching. Perhaps the more relevant question is, How will you keep in touch with me? Email? Phone chat? Face-to-face meeting at the office? Beers after work? The robo-advisor's favorite restaurant? Sports event? When markets are tanking or skyrocketing, you’ll probably want to speak with your robo-advisor to get the story of what’s going on, but remember, that’s a story. Please refer back to question #4 about the story-telling deficiency.

Question: #10: Will you adhere to the Three Laws of Robotics?

Forget about suitability and fiduciary standards. Those are for mere financial advisor mortals and their silly conflicts. To protect yourself, you need your robo-advisor to pledge that it will adhere to a set of rules introduced by Isaac Asimov, called the Three Laws of Robotics. These are, 1) A robot may not injure a human being or, through inaction, allow a human being to come to harm. 2) A robot must obey the orders given to it by human beings, except where such orders would conflict with the First Law, and, 3) A robot must protect its own existence as long as such protection does not conflict with the First or Second Law. ...Thus, if your robo-advisor loses money for you, particularly when compared to the returns of other robo-advisors dispensing algorithmic advice, you might be “harmed.” If think you've been harmed by your robo-advisor's advice, immediately meet with it and ask “What happened? What’s the story?” and refer again to question #4 above. ...Or call your robo-lawyer.

Asides & Credits

Breaking through the proverbial fourth wall here on the stage of parody theatre (with what is now undoubtedly a very tiny audience in this insanely overdone post, but cheers to you in staying for the credits), we’d offer that the human tendency for anthropomorphizing knows no bounds, as evidenced by the casual and seemingly accepted use of the term “robo-advisor.” Who coined this term anyway, and why is anyone okay with it? (Well, it is light-hearted marketing fodder for us.) Perhaps those "software-based financial advisors" (ohhh no, here we go again, just discovered that term a minute ago) - whose online brokerage systems and marketing methods we admire - as well as the pundits who actually use this inelegant "robo-advisor" term are onto to something in the inevitable merging of man and machine as we all cruise down the Singularity highway. Who knows? Beyond the cold inelegance of the term, there's also a gnawing existential sense of dehumanizing ourselves via language when we say and compare a "financial advisor" with "robo-advisor" or "software-based financial advisor." Software-based human, anyone? Who's your software-based replacement? ...Who's your software-based daddy?

In any event, we predict a bumpy road in human/robot relations. When you see an online discount brokerage company writing a blog post with the title "Financial Advisors Are Bad for Your Wealth" and depicting financial advisors as pigs (later clarified in the post as meaning "brokers" after an articulate beatdown by Downtown Josh Brown, though the title and pig image remain) you know something's amiss in our software-is-eating-the-world culture. If a few founders of an online brokerage each personally exit someday with tens of millions of dollars, will anyone call them pigs? After all, the money would have been made from fees based on assets under management, similar to fee-based financial advisors. Are they not simply a mass market brokerage with a bundled AUM fee, aided by self-service web forms? Are they robo-pigs? (On a side note to this aside, these kinds riches in tech and finance is why a confiscatory wealth tax is unfortunately - pun intended - inevitable in our age of broke governments and increasing populism, but I digress.)

With the recent Oxford University study that predicts 47% of US jobs are at risk of being taken over by robots and automation in the next two decades, we think humanity is going to need a new set of shock absorbers for this ride. Venture capitalists and founders in the solipsistic internet scene boast the phrase "automating away" (as in other people's jobs, as in a good thing - and it typically is for shareholders and consumers, not laboring producers) and the press loves the word "Disruption" while rarely covering the plights of those whose lives are digitally disrupted. While the value and benefits of most tech innovation seem obvious, and we're trying to be a part of it ourselves in a small way, we do wonder about how this Race Against the Machines ends for so many people. We don't have the answers, just some questions.

Inspiration for this post, beyond the slippery slope of anthropomorphism and the silly term “robo-advisor,” also comes from the multitude of articles in the How-to-Choose-a-Financial-Advisor-Genre that are published regularly on the web. To be sure, such publishing speaks to the ongoing difficulty that consumers have in finding and engaging with financial advisors, and we think Wealthbase can help those consumers connect with skilled and trustworthy financial advisors and their firms for comprehensive financial planning. And we hope to include on the Wealthbase network those digitally savvy advisors that employ similar portfolio planning tools (with pie charts!) that so-called robo-advisors use to display one's portfolio. For financial advisors (as in so many other professions and trades) it's digitize or die and move to higher ground in providing services. The rising tide of automation in the digital deluge isn't programmed with any ebb.

Credit for the headline picture of the robot (with our photoshopped piechart) goes out to Banksy, whoever and wherever he (it? artist?) is in our hood. We figured if Banksy can illegally spray paint on private property, we can remix the pixels on an image of one of his beautiful artworks of a creative, vandalizing spray painting robot.

@JohnRourke is the CEO of NYC-based Gotham Tech Labs, Inc., makers of @Wealthbase, a multimedia question-and-answer site that connects consumers to financial advisors with ease, compliance - and humanity. And for the record, he regularly suggests discount, online discount brokerage services like the ones mentioned above to some friends, without introducing these automated services as a "robo-advisor." While he's wondering about Snowden or Putin, he remains with his prediction months ago about Time's Person of the Year in 2013: The Robot. Or maybe next year. Whenever. It's inevitable.

The Wealthbase Prelaunch Poem: "Questionable Content"


Read our new poem entitled "Questionable Content"!

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Questionable Content

a question is telling
from consumers who ask
for by its occurrence
marketers have a task

to reply to the query
instead of promoting
and engage the inquirer
without the showboating

with the right answer
a need is met
the consumer is happy
the marketer is set

to transfer knowledge
and provide expertise
on the inbound road
content will please

the swarm of customers
like bees to nectar
lured to information
no matter the sector

with relevant context
questions will spark
online discussions and
answers on the mark

of course this is meta
feel free to assume
it’s content marketing
for all to consume

and share with peers
in the fintech space
a new Q&A site
called Wealthbase

questions and answers
on the money and more
where consumers connect
with experts at the fore

of personal finance
retirement and investments
Wealthbase helps consumers
make planning assessments

engagement takes place
with ease and compliance
and fosters new relationships
based on trust and reliance

on financial professionals
with a holistic view
hang in there now
we’re almost through

advisor pages and widgets
video and live chat
Wealthbase is a network
so very true that

integrates with Wealthbox
a CRM that’s a breeze
keep track of clients
at the office or from Belize

remember this marketers
hope it makes an impression
ad banners are passe
but the consumer has a question

triggered from content
that’s relevant and wise
Q&A creates value
and forms new ties

credit to Messrs. Halligan & Shah
of Hubspot fame
coined inbound marketing
that changed the game

before you go
a call to action
tweet this poem
so we get traction

with financial advisors
broker-dealers and publishers too
for Wealthbase is coming soon
to a screen near you

@JohnRourke is the CEO of NYC-based Gotham Tech Labs, makers of @Wealthbase, a question-and-answer site that connects consumers to financial advisors with ease and compliance.

Wealthbase is an inbound marketing network for financial advisors.

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