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SEC vs Robo-Advisors | Alerts And More Robo News

Last Updated on December 13, 2021 by Barbara A. Friedberg, MBA, MS

Disclosure: Please note that this article may contain affiliate links which means that – at zero cost to you – I might earn a commission if you sign up or buy through the affiliate link. That said, I never recommend anything I don’t  believe is valuable

Robo-advisors launched more than a decade ago as low cost investment managers for individual investors. Statistica.com’s digital investment report estimates US robo-advisor assets under management at $999,036 million in 2021. With projected growth of 17.64% over the next four years, the 2025 AUM estimate is $1,913,216 million with 16.113 million users by 2021. There’s little doubt that digital investment management has taken hold.

Most robos poll a client’s financial goals and risk tolerance levels and spew out a well-diversified investment portfolio populated with low fee exchange traded funds. The automated investment manager’s numbers have exploded over the decade with the addition of human financial advisors, customization, banking and lending services.

As robo-advisors proliferate, regulators pay more attention to their practices. And the Securities and Exchange commissions doesn’t like what it sees.

But are robo-advisors the heroes in the investment management business, or the villains?

Are Robo-Advisors Serving the Public?

The SEC’s goals are to protect the public from unsavory investment practices and maintain fair, orderly, and efficient markets. Their ultimate mission is to aid with capital formation. The SEC recently called out the robo-advisory field and put most internet advisors on notice.

The SEC set out to examine internet investment advisors business models, client types, investment practices, assets under management (AUM) and basis for SEC-registration. The SEC wanted to find out if these digital investment advisors were behaving as fiduciaries and providing appropriate advice for their clients needs and risk levels. They checked out whether the companies followed legal compliance mandates, including reviewing their policies and procedures at least one per year. The government agency also reviewed marketing and data protection to make sure it was accurate and appropriate.

The examination found extensive issues and nearly all robo-advisors received a deficiency letter. The robo-advisors shortcomings fell into several categories:

  • Widespread non-compliance related to policies, procedures and testing.
  • Problems with portfolio management including failing to provide advice in each client’s best interest
  • Marketing deficiencies including misleading statements and inadequate disclosures.

There were a host of problems with many of the digital investment platforms. The most concerning included the advisors lack of oversight to ensure that clients receive the best portfolios for their goals and risk tolerance. Should a misalignment occur, users might experience riskier portfolios than they are comfortable with. This can be distressing during a steep market decline and could lead investors to pull out of markets at inopportune times. To read the report visit the SEC.gov Risk Alert.

While concerning, this SEC report should lead to better investor practices within the robo-advisory industry and remind users to understand what they are investing in and to assess whether their asset mix, from conservative to aggressive, is appropriate for them.

Latest Robo-Advisor News

New Robo Advisor Apps Launch

Douugh, a Fintech Budgeting app, Launches a New Robo-advisor Feature” by Trina Paul at CNBC Select

“Douugh Wealth allows users to choose between six types of portfolios curated by investment experts.

There are a lot of apps and services out there that help you budget, like Mint and Personal Capital, and others that make it easy to invest like Robinhood and Wealthfront.

However Douugh, an Australian financial technology company, intends to help you reach those financial goals with the ease of using just one app. While Mint is is a budgeting app and Wealthfront is a robo-advisor app, (editor’s note; Wealthfront also offers cash management and lending services) Douugh promises to provide users with both. Douugh also owns Goodments, a $0 commission trading platform.

With Douugh’s new robo-advisor feature that launched today, known as Douugh Wealth, you’ll have access to curated investment portfolios as well as Douugh’s core platform which includes a checking account and accompanying debit card…..”

Douugh now joins Acorns and Stash with an all-in-one money and robo investing app!

Seattle fintech startup Allio raises $5M for robo-advisor investment tool” by Taylor Soper at Geekwire Startup

Allio, a new Seattle startup building a robo-advisor investment tool for consumers, has raised $5 million. ‘We’re the first micro-savings tool that allows users to customize their investment portfolio using both traditional and contemporary asset classes in the robo space,’ said finance vet Joseph Gradante, who founded Allio last year.

Gradante said Allio differentiates by taking a modern approach to portfolio management built for an artificially low interest rate environment, as opposed to traditional Modern Portfolio Theory (MPT) strategies.

The company’s investors include Liberty Partners. Allio, which has less than 10 employees, recently joined the WTIA startup program and is a graduate of Venture Out. Its CTO is David Chen, a former senior software engineer at Minted…..”

Available asset classes haven’t been published yet. Can sign up for wait list on the website.

Crypto robo-advisor Stacked raises $35 million from Fidelity International unit and others. “by Yogita Khatri at The Block

“With fresh capital at hand, Chicago-based Stacked plans to grow its current team of 40 people to over 100 in the next year and go fully mobile within the next six months, said the firm.

Stacked is currently a web-based robo-advisor that allows users to automate their crypto investing experience through pre-built portfolios called “stacks.” (editors note; eToro also offers pre-made managed crypto portfolios) The firm says it has automated over $10 billion worth of transactions for tens of thousands of new investors in 2021. 

Stacked also allows users to connect to multiple crypto exchange accounts and manage their portfolio in one place. The firm says over $100 million in user funds are connected to its portfolio management platform, and that it aims to have more than $1 billion in assets under management (AUM) in 2022.  

Cryptocurrency investing is speculative and best for aggressive investors.

Who’s Using Robo Advisors, and Should You Sign On?

Who’s Using Robo Advisors?” by Tod Godbout at NAPA – National Association of Plan Advisors

“While a low percentage of plan sponsors provide participants with access to a robo-advisor, a new report finds growing robo usage by pre-retirees and younger generations, as well as more balanced portfolios for those with less than $100,000 in assets.

In “Robo Usage, Awareness and Trial: Market & Competitive Data to Inspire Innovation, Improve Portfolios and Increase Conversion,” Hearts & Wallets reports that U.S. households who have some money in robos increased to nearly 12 million in 2020, up from 10 million households in 2019. 

Hearts & Wallets defines robo-advisors as investment solutions, specifically ‘automated portfolios that use technology to build, monitor and automatically rebalance investments, and often offer access to an investment professional.’  

According to the research, robo ownership was found to be most common among households with $50,000 to $500,000 and younger generations. Nearly 7 in 10 Millennial millionaires have some money in robos or automated portfolios. Moreover, nearly 20% of Millennial and Gen Z households who know the investment products they own have some money in robos versus only 13% of Gen X and only 2% of Boomer+ households (Boomers and older)…..”

Robo-advisors are low fee ways to get a broadly diversified managed portfolio. With any managed investment you need to understand what you’re invested in and that the percent in volatile stock assets is appropriate for your risk level.

You’ve Got a Complicated Financial Life. Find Out if You Should Ditch Your Robo Advisor for a Human” by Melissa Brock on Yahoo!Finance (Originally published one Entrepreneur.com)

“Have you been toying with the idea of hiring a financial advisor once and for all? You’d find yourself in the minority.

A whopping 75% of Americans manage their own finances, with no help from a professional or online service, according to a new CNBC and Acorns Invest In You Savings Survey. A low 17% of Americans say they use a financial advisor.

The truth is, people’s financial lives are way more nuanced than what a robo advisor can juggle. For example, what if you say, “My special needs child will graduate from high school in three years and we need to set up some sort of fund to provide for him. In the meantime, our daughter will graduate from high school in eight years, and we need to develop a college plan for her. Plus, I think my wife and I may be getting a divorce. What should I do?….”

All-digital robo-advisors aren’t for everyone. If your situation is complex, consider a hybrid robo-advisor like Ellevest or Betterment, with access to financial advisors.

“More state-based help 

Not all Americans have access to employer-sponsored retirement plans, which allow workers to defer a portion of their paychecks into a retirement account in a tax-advantageous manner. States are responding to this lack of accessibility by creating their own state-sponsored retirement plans, using automated investment services that offer individual retirement accounts in a similar manner to employer-sponsored plans. 

More attention to personal finances 

The pandemic shed light on just how crucial financial planning is for every individual, especially those with little saved for retirement or emergencies. Leaning into one’s own finances is a trend that is expected to continue into the new year — especially as uncertainty swirls around COVID-19, newly discovered variants and local and federal governments respond to this health crisis…..”



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Barbara A. Friedberg, MBA, MS

Barbara Friedberg, MBA, MS brings decades of finance and investing experience to Robo-advisor Pros. She is a former investment portfolio manager and taught Finance and Investments at several universities. Barbara Friedberg's published work includes Personal Finance; An Encyclopedia of Modern Money Management (Greenwood Press), Invest and Beat the Pros-Create and Manage a Successful Investment Portfolio and How to Get Rich; Without Winning the Lottery. Follow her on twitter