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7 questions investors should ask before signing up with a robo-advisor

By Daniel Lanyon on 7th July 2017

Robin Wiessmann, from the Pennsylvania Department of Banking and Securities, reveals a handy checklist for investors considering robo advisors.  



The US robo advice market is probably the most developed in the world thanks to the heady growth of firms such as Betterment and WealthFront – among other reasons – which between them have 10s of billions of dollars in terms of their assets under management.


Amid the growing popularity of robo-advisors, the Department of Banking and Securities has put together questions investors might want to consider before switching to the lower-cost robo investment alternative that offers little or no human interaction.


A robo-advisor is a web-based computer program that allows investors to create their own financial plan. Driven by algorithms and using an online client survey, a robo-advisor collects information from individual investors about their finances and goals to create and manage an investment portfolio. These programs are sometimes also referred to as an “automated investment advisor” or “online investment advisor.”


“While these online services may provide short-term convenience, investors should evaluate robo-advisors in accordance with their long-term investment goals, according to Secretary of Banking and Securities Robin Wiessmann.


“They promise access to services usually thought of as reserved for only the wealthiest investors. For nearly a decade, reputable companies have offered robo-advice, but investors still need to remain engaged with the way their money is managed by asking important questions.”


Wiessmann pointed to seven questions all investors considering a robo-advisor should ask:


  1. What are your investing goals and how do you want to reach them?
  2. What are the costs of using a robo-advisor compared to using a human advisor?
  3. Is your personal information safe with a robo-advisor? 
  4. Are you willing to stop or decrease the amount of investing advice you receive through human interaction?
  5. What are the different approaches to investing used by different robo-advisors?
  6. Is your money being directly invested or sent to other funds (“feeder funds”) that might charge additional fees? 
  7. Is the robo-advisor properly licensed?


“The bottom line for investors is clearly understanding what is being done with your money,” said Wiessmann.


“The relationships between robo-advisors, investment products, fees, and other companies and funds are not always clear. Investors should always investigate before investing.”


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