Barron’s: The Robo-Advising Reality Check

Barron’s in a recent article examined “The Robo Advising Reality Check,” which brought to light several compelling trends in robo-advisory. Let’s highlight the most important takeaways.

Advisors generally adjust the composition of an exchange-traded fund, or ETF investment portfolio either manually or using a robo-advisor approach in order to maintain the proper asset allocation for each client. The Barron’s article focuses on the use of ETFs within investment portfolios among wealth managers who use robo-advisors.

The issue that Moenio chief Kevin Neal raises is that too many financial advisors are asleep at the wheel rather than monitoring “automatic portfolio adjustments” that occur within ETFs.

According to Neal, only financial advisors from the major financial institutions such as “Bank of America, Wells Fargo, UBS, and LPL Financial” are obsessed with reviewing robo-advisor selected funds to ensure that they continue to reflect the client’s investment profile and the firm’s investment style. When the robo-advisor funds no longer reflect the client’s needs, these advisors see it and adjust the portfolio accordingly.

Meanwhile, what Neal suggests is happening too often is that investment advisors are not monitoring the robo-advisor selected funds and are instead using their time and resources to nurture client’s investment concerns. Eventually, when it becomes apparent that certain investment funds are under-performing their benchmarks, the advisor makes “knee-jerk” reactions. This leads to changes in equity and fixed income asset allocations that no longer are in step with the client’s needs or expectations.

To avoid the latter scenario, Neal suggests investors hold their advisors accountable for the strategies they employ when it comes to robo-advisory. More specifically, Neal suggests investors ask their financial advisors for several years’  worth of historical data reflecting the performance of robo-advisor selected funds versus relevant benchmarks.

To discuss the robo-advisor trend in more detail, contact us at TentonPines Financial today.