Broker Check

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350 N Orleans St,

Suite #9000n
Chicago, IL 60654


March 13, 2019

I recently took the plunge and checked out several so called “Robo Advisor” services. I also reached out to a banking institution that primarily provides banking, financial and insurance services to military veterans. I wanted to learn more about their “managed services. Why did I do this?

To see what value they had to offer. Besides, I have clients and prospects asking about these platforms. So, what is the definition of a Robo-Advisor?

“Robo-advisors are a class of financial adviser that provides financial advice or portfolio management online with minimal human intervention. They provide digital financial advice based on mathematical rules or algorithms.[ii]”

Almost all of the platforms reviewed provided a similar canned series of questions approach.

What questions did they ask?

· What are you investing for? (general savings, retirement, college savings, other)

· What are you looking for in a financial advisor? (Save money on taxes, diversified investment portfolio, I’d like someone to completely manage my investments, I want to beat the performance of the markets)

· What is your current age?

· What is your annual pre-tax income?

· Describe your household (single income, dual income, retired)

· Liquid cash (checking, savings, cds)

· What do you care most about

o (maximizing gains, minimizing losses, both)

· If your investments lost 10% what would you do? (keep it, buy more, sell)

Click and voila

After clicking next and following the above questions I’m given an investment recommendation. A percentage breakdown of U.S. Stocks, Foreign Stocks, Emerging Markets, Dividend Stocks, Natural Resources, Municipal Bonds. I find this amazing and disturbing. It was so simple so easy, almost too easy. If you like what you see, there is a button to open an account.

I find this quick fire investment recommendation concerning because these websites know what amounts to barely nothing, in my opinion, about me or my financial picture to make any recommendations. It’s like using an online service to obtain medical advice instead of going to the doctor in person. Or getting a diet recommendation and they don’t know what I’m eating already.

Reviewing the questions, I didn’t see a part of the process where they could say, “no” to me. The entire platform seemed to be built to say yes at the end of it.

I don’t know how a service can work in the interests of their clients without the ability to say no. This is important, because most consumers do not know any better. The average consumer asks for and needs to be informed, educated and coached. You can graduate high school and college with great knowledge and information, but you are not required to balance a check book, know the difference between a stock and a bond or understand what a fair rate of interest is for borrowing. In closing the robo-advisor platforms made me feel like these platforms are setting up investors to put money to work in the market period.

I had the same experience with the managed money platform from the bank. I received a call from them to explore more options and get started. I enjoyed the ability to speak with an actual person and ask questions. However, similar to the Robo-Platform, the rep didn’t ask me any personal financial questions to make sure investing was the best place for my money.

At the end of both interactions it was quite possible for me to be diving head first into investing when my money may be better placed elsewhere. Both platforms had no idea if I had high interest credit card debt, a life event coming up such as a wedding, baby, home purchase, career change, short term cash needs, or a big purchase on the horizon.

So are these platforms bad? I’m not sure if they are bad. They just seem focused on driving down costs and getting your money in the market. Compared to other rivals in the market place, I’m not sure they can win that game. On mass, in my opinion we are at a point where costs are so low most providers are no longer squeezing out inefficiencies, they are removing quality, the ability to serve complex scenarios and greatly reducing service and education.

The examples I reviewed are setting everyone up to take the same over the counter medicine when they could need a prescription or no medicine at all.

In closing, I don’t think these platforms are bad. I’m a fan of any platform that helps people save. What I will say is if you do use these platforms, lower your expectations. These platforms are not designed to treat you like a person. They are not built to be pragmatic, dynamic or provide you with a personal individualized experience. It seems these programs will only call you if you’re an affluent customer. They are built to cheaply invest your money in the market with nominal human interaction in a one size fits most approach. The platforms are fairly or completely agnostic of your financial behavior, detailed future goals, family situation, employee benefits and other key factors to render truly professional advice.

As a financial advisor I’m not intimidated or scared of these platforms. There are so many areas of finance that are complicated, misunderstood, underutilized and unknown to consumers. Robo-advisors are not able to help you with those challenges today and I do not see how they will be able to do that anytime in the near future.

Kit Lancaster is a Financial Advisor and Certified Financial Planner Professional from Chicago, IL. He enjoys working with professionals, business owners and families who have a desire to be financially successful and are looking for courses of action, education and perspective to aid them in accomplishing their financial goals. Kit holds regular educational events in Chicago and online. If you would like to schedule a no obligation consultation or receive more information on his next event please contact him by phone, email or the link below.

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Kit is a Registered Representative and Investment Advisor Representative. trk # is 1828947 and dofu is 7/2017