Cyber Trends

They're Here: Algorithms and Non-Human Investment Transactions

7 Questions Investors Should Ask Before Signing Up with a Robo-Advisor

HARRISBURG, Pa., July 6, 2017 /PRNewswire-USNewswire/ — Amid the growing popularity of robo-advisors, the Department of Banking and Securities advises investors to ask questions before switching to a lower-cost 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,” said Secretary of Banking and Securities Robin L. 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.”

Who’s Your Robo?

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

  • What are your investing goals and how do you want to reach them? Learn more about investing principles [PDF]
  • What are the costs of using a robo-advisor compared to using a human advisor? Learn more about how to compare these costs.
  • Is your personal information safe with a robo-advisor? Learn more about keeping your online accounts safe.
  • Are you willing to stop or decrease the amount of investing advice you receive through human interaction? Learn if robo-advising is right for you.
  • What are the different approaches to investing used by different robo-advisors? Learn more about differences between robo-advisors.
  • Is your money being directly invested or sent to other funds (“feeder funds”) that might charge additional fees? Learn more about feeder funds.
  • Is the robo-advisor properly licensed? Search the U.S. Securities and Exchange Commission database.

What’s being done to your money?

investors should evaluate robo-advisors in accordance with their long-term investment goals

“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.”

Investors with questions or complaints about financial services, companies or products can call the Department of Banking and Securities at 1-800-PA-BANKS (or 1-800-600-0007). To learn more about investing, retirement planning, and other financial subjects, visit PA Investor Education on Facebook and @PAFinancialReg on Twitter.