Robo-Advisors – Are You Using Them?

By December 8, 2020 No Comments

Robo-Advisors – Are You Using Them?

In the last few years, we have seen a growth in availability and popularity of automated digital investment advisory programs (often called “robo-advisors”).  What are robo-advisors? How do they work? Can we trust them?   

What is a Robo-advisor?

The term “robo-advisor” (or robo-adviser) generally refers to an automated digital investment advisory program.  In most cases, the robo-advisor collects information regarding your financial goals, investment horizon, income and other assets, and risk tolerance by asking you to complete an online questionnaire.  Based on that information, it creates and manages an investment portfolio for you.  Robo-advisors often seek to offer investment advice for lower costs and fees than traditional advisory programs.

What is the Amount of Human Interaction?

The amount of human interaction available to you may vary from one robo-advisor to another.  Some robo-advisors may offer the opportunity to contact an investment professional to discuss your investment needs (this hybrid of both automated and personal advice is sometimes referred to as “bionic” advice).  Other robo-advisors may only make technical support staff available.

If a robo-advisor does make an investment professional available to you, the format and amount of the interaction may also vary.  For example, a person may be available by email but not by phone, or available only for a limited number of in-person meetings.

What Information is the Robo-advisor Using to Create a Recommendation?

A robo-advisor uses information you provide to create a recommendation.  As a result, a robo-advisor’s recommendation is limited by the information it requests and receives from you, typically through an online questionnaire.

What is the Robo-advisor’s Approach to Investing?

Different robo-advisors have different approaches to investing, including different investment styles and different products offered.  Some have several pre-determined portfolios of investments that they will recommend for you that you may or may not be able to customize.  Other robo-advisors focus solely on a limited range of investment products, such as broad-based exchange-traded funds, or ETFs.

Also, some robo-advisors may recommend emerging market funds or invest in smaller companies, which could be more volatile or potentially less liquid.  The investment style of the robo-advisor can make a big difference in the asset allocation of your portfolio.  In addition, some robo-advisors have additional features that can affect returns on your investment.

You should take the time to understand how the robo-advisor develops a portfolio recommendation, and what pieces of information it uses – or does not use – in developing the portfolio.

What Fees and Costs Will the Robo-advisor Charge?

Fees and other costs can greatly impact your return on investment.  One of the main benefits of a robo-advisor can be lower fees and costs. A robo-advisor may offer lower-cost investment advice, but if the robo-advisor utilizes investment products with high costs, your total overall costs could still be high.

Licensing and Registration – How Do You Find More Information?

Firms that provide advisory services in the U.S. are typically registered as investment advisers with the Securities and Exchange Commission (SEC) or state securities authorities.  Although the services that they provide are automated, robo-advisors in the U.S. must comply with the securities laws applicable to SEC or state-registered investment advisers.  Investors can use the SEC’s Investment Adviser Public Disclosure (IAPD) database, which is available on, to research the background, including registration or license status and disciplinary history, of any individual or firm recommending an investment.

About CMR & Associates + PolicySmart™  

CMR & Associates’ risk management consultants provide independent retirement and insurance advice by reviewing your current plans to improve coverage and reduce cost. Through CMR’s proprietary database – The CMR Database® (comprised of some 13,000 brokers and specialists globally) – we maximize access to the insurance and retirement industry for greater options that will translate to better coverage and lower cost.

Please email CMR Associates or call 877-447-4301 or 212-447-4300 for more information.