The Robo Advisor Controversy

Charles Schwab And Wealthfront Debate Over Values And Fees


You may have read the recent controversy between two financial services companies, Charles Schwab and Wealthfront.  A debate arose between these two firms last week when Schwab introduced their new automated robo offering, Schwab Intelligent Portfolios.  Wealthfront CEO Adam Nash openly accused Schwab of trading in its values for profits and purposely deceiving investors by promoting its platform as free in a blog post, Broken Values and Bottom Lines.

  This resulted in a response from Schwab, countering Nash’s claims and defending their offering and position.

I think it would be unfair to argue about the details of Schwab and Wealthfront’s robo programs, and I can appreciate that both companies are seeking ways to leverage new technology.  However, as I’ve written before, I believe that the pure robo-advisors are missing the mark on what leveraging technology can really mean to the investment industry.  While these firms have lowered investment costs, what they don’t offer is the personalized advice that people need when they are faced with important, real-world financial decisions. 

The model that will work is a hybrid model in the form of a digital advisor.  Digital advisors combine the low cost fees and easy access of technology with the traditional services of brokerage services like those at Merrill Lynch and Morgan Stanley.  Digital advisors give the mass affluent, or those who have less than $1 million in investable assets, the opportunity to invest, while at the same time providing access to a real investment advisor who can help navigate the sometimes choppy waters of college savings, retirement, taxes and other big financial challenges.

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  Investing involves risk including the possible loss of principal.  This information is not intended to, and should not, form a primary basis for any investment decision that you may make. Always consult your own legal, tax or investment advisor before making any investment/tax/estate/financial planning considerations or decisions.