With all the discussion revolving around the comparatively new offerings by robo advisers, it seems useful to examine an actual case to see what might be good or not so good about them. With a substantial trust requiring attention upon its formation at the death of the original investor, the trustee sought proposals from a variety of sources. The trust was largely composed of equities, including a couple of significant concentrated positions, so it was clear that some changes were indicated to protect the trustee as well as the beneficiaries.
Reviewing the proposal by a well-known major firm, it appeared that the concentration problem was alleviated by selling a substantial portion of the large positions and purchasing other equities. In fact, the list of suggested purchases was lengthy and backed by page after page of tables and graphs, largely addressing past performance and providing lots of irrelevant or muddy data. Nothing in the proposal addressed the requirements of the trust or of the beneficiaries – it was simply an exercise of how we might carve up the money held by the trust.
The robo proposal, which by the way was offered at a much lower cost than that required by the major firm, similarly alleviated the concentration problem with its recommendations. Unlike the major firm, however, the robo adviser recommended a significant reduction in the overall equity exposure and included some fixed income components in the mix. The proposal did not bury the reader with page upon page of information of minimal utility or try to show the extra “value” apparently claimed by the major firm. Naturally, the robo proposal did not address the requirements of the trust or its beneficiaries as that is not within the scope of its services.
Both proposals claimed to provide all sorts of due diligence on the investments, rebalancing, etc. etc. At bottom, it was clear to the observer that for the money, the robo was a much better offering for purposes of the trustee and the beneficiaries. In either case, the trustee retained the burden as fiduciary – a burden that neither the major firm nor the robo were willing or able to accept. The only better choice available, not considered at this point in time, was to work with a professional planner and adviser who would accept fiduciary responsibility AND make the effort to understand the needs and requirements of both the trustee and the beneficiaries.
The robo sure looked good compared to that household name firm that wanted the trust to pay for its name in addition to the desired service.