State cautions investors to check out ‘robo-advisors’ before using them

Posted at 3:40 p.m. on April 17, 2019

The Brillion News

MADISON – Investors are increasingly turning to robo-advisers to help them manage their investment portfolios. The term “robo-adviser” refers to electronic platforms that provide automated investment advisory services to customers utilizing computer algorithms developed by the platform’s sponsors.

The ability to easily access roboadvisers via smartphone apps and online portals is contributing to their increasing popularity. The automated nature of the model often means robo-advisers may offer their services at a comparatively lower cost.

“If Wisconsin investors are considering a robo-adviser, they should be sure to examine all available information to make sure they understand the risks and benefits provided by this type of advice,” said Kathy Blumenfeld, Secretary-designee of the state Department of Financial Institutions. “They should make certain that it is appropriate for their short- and long-term needs.”

There are two general robo-advisory models. The ‘pure’ model is entirely automated with little-to-no ability for customers to receive personalized investment advice from a financial-services professional. A second model is a hybrid robo-adviser, which adds a level of human interaction – generally at a higher cost – allowing customers to work with a financial-services professional online or in person.

For information on who this model may serve and what things to consider before investing, the full advisory with further details are available below, on DFI’s website and from the North American Securities Administration Association here.

Robo-advisers are relatively new to the investing landscape but, like other advisers, they must be registered to offer investment advice. Before making any financial decisions following traditional or new models, ask questions and do your homework. To check the registration status of a securities firm or salesperson, call the Department of Financial Institutions’ Division of Securities at 608-266-2139, Monday through Friday between 8 a.m. and 4:30 p.m.

The term “robo-adviser” refers to electronic platforms that provide automated investment advisory services to customers pursuant to computer algorithms developed by the platform sponsors. Robo-advisers thus in effect replace the roles of financial services professionals with computer algorithms. In so doing, robo-advisers may be able to offer useful services at comparatively low cost. Robo-advisers may be discretionary or non-discretionary – i.e., a customer may allow the platform to execute trades automatically on the customer’s behalf or may withhold trading authority and use the platform’s advice as a mere recommendation for the customer’s own investment decisions.