We are not Robo-Advisors

Robo-advisors fill a need. They are serving people with a small amount of money who haven't traditionally been served by advisors. They have also pushed the entire financial industry forward in terms of becoming more technologically efficient and transparent.

That being said, PWR is not a robo-advisor and we have no plans to become one. 

By definition, a robo-advisor is a digital platform that automates financial advice with little to no human interaction. You fill out a survey and that is used to generate an investment strategy and other recommendations. While not all robo-advisors are the same, here are some commonalities we have gathered in our research.

#1 You won't get their "A" Team.

Most robo-advisors don't offer a human advisor. If they do, they hire newly minted CFP® professionals that get paid on the lower range of the pay scale. It works out well for the advisors because they gain experience and build their resume before moving on. There probably are very experienced advisors on staff, but you are not likely get them as a designated advisor. You will receive a 1-800 number to call that is answered by someone who might not be there in a year. 

#2 They will recommend you purchase their proprietary products.

Vanguard and Schwab, for example, have great funds and ETFs, and we may advise you to invest in some of them, but we have independence. We have the flexibility to pick the best product for you, not just our firm's products (since we don't have any products to sell). For example, take ESG investing. While we have recommended Vanguard funds for a long time, we're not recommending their ESG funds because we don't think their methodology is as thorough as other providers. That may change, but the fact is that we enjoy greater flexibility and can cast a wider net.

#3 They'll push other service offerings.

You will be sold other products to make up for the low robo-advisory fee. Big firms consider their robo-advisory service a loss-leader (a service that operates at a loss for the company but is used to get clients in the door so they can be sold more profitable goods and services) . If it doesn't work out, they scrap the program. For example, NestWise (the first Robo I heard about) grew, got acquired by LPL, and then was shutdown for not growing fast enough. Next came LearnVest, which got acquired by Mass Mutual, and also was shutdown.  

#4 You may be forced to veer from your ideal strategy.

For example:

  • Requiring you hold a large amount of cash. Brokerage firms make more on your cash than they are paying you in interest. For example, if you are required to hold 7% of cash on a $500K portfolio, that's $35,000. Assume that cash is earning .33% ( or $116 per year). You could be investing it in your portfolio or at least in an online bank elsewhere earning 2.0% (or $700 per year). So you are paying for the robo-advisory service, just in a roundabout way. 

  • Starting you in passive management, then moving you into active strategies. For example, Wealthfront decided to put client money into a risk-parity strategy. This pivoted from the initial passive, indexed investment approach they sold clients on, and the strategy was opt-out only (meaning if you didn't opt-out, up to 20% of your money was going into this new strategy). 

#5 It not all about you - it's about the shareholders.

Most of the robo-advisors are public, their parent companies are public, or they plan to go public. That means the focus has to be about pleasing shareholders and improving the bottom line, or the robo-advisor program gets scrapped. 

Robo-advisors are a fine solution if you are just starting out and want a "check in the box" financial plan. And it is certainly better than nothing. But if you want someone who is experienced, consistent and will grow with you, work with an independent, fee-only, fiduciary firm like PWR.

Linda Rogers, CFP®, EA, MSBA is the owner and founder of Planning Within Reach, LLC (PWR). Linda is a Financial Planner and Tax Preparer located in Coronado, CA (San Diego). Linda is the Director of Investments and Compliance for PWR. Linda conducts all of the research and due diligence on PWR's Impact Focused Investment portfolios and also focuses on creating a sustainable and impact focused business plan for PWR. Linda has 13 years of experience in wealth management and works virtually with clients all over the US.

Planning Within Reach, LLC (PWR) is a fee-only and fiduciary wealth management firm offering one-time comprehensive financial planning, ongoing impact-focused investment management and tax preparation services in San Diego, CA. PWR is a virtual firm that is woman-owned and serves busy families and impact investors. Planning Within Reach, LLC and their advisors never receive any type of commissions for sales and does not have any insurance licenses or brokerage relationships.