- They were pretty upfront and detailed into what specific ETFs would be used, as well as the MER costs.
- They were also upfront that yes this will cost you more than what you’re paying in your current portfolio. We’re talking about another 0.15 basis points, but if you layer additional “value-added” products over a long period of time, it can add up and eat away at your savings.
One of the failures of investors is people take a carefully designed portfolio and “tweak” it to add new products and securities that they either heard about from someone or that their adviser pitched to them. People think they’re not altering their portfolio much, but with a tweak here and a tweak there, you can end up with a dramatically different portfolio that may not get you the results you want.
This is the first time my ROBO has pitched me on tweaking or adding to my portfolio. The reality is it’s trying to upsell me to a higher-cost product that may or may not be in my best interest. ROBO is clearly going after the Millennial crowd and appealing to their yearning to make the world a better place. It may very well succeed. Whether the customer benefits is like almost everything with this robo-adviser model, up for debate.
Cramping my space
One of the services my practice offers is analyzing portfolios and providing input on whether they are in alignment with the client’s overall investment plan. It’s not a huge component of my practice, but I get a few people here and there looking for a third party, unbiased assessment and I’m happy to help them. So as I was thumbing through Twitter, I caught note of a Tweet from my ROBO indicating that it is introducing a portfolio review service that does the following (I’ve removed references to the actual ROBO service):
“one of (ROBO’s) resident financial geniuses will look at your entire financial picture and give you a diagnosis and, using a methodology based on Nobel Prize–winning academic research, some simple, actionable, and really good advice….”
And oh yes … it’s free. Talk about eating into my gig.
As much as my initial thought was I’ve just been disrupted — by Nobel Prize winning people no less — I’ll admit that free is catchy and free will bring in a lot of people to the ROBO and not to me. Again, disruptive feelings are entering my space. They seem to hitting all the notes I hit in my service offering, evaluating costs, making sure assets are not too concentrated domestically … good things. The premise seems quite appealing.
Then I came to this piece on execution:
“…Before we can give you advice, we’ll have to know all the details. We understand you might be shy. But we assure you that it’s totally safe, private, and completely judgment-free! All you do is upload your investment account statements. Then one of our portfolio managers—an actual human!—will comb through them and do a comprehensive, personalized analysis. Once that’s happened, you’ll set up a call with your ROBO portfolio manager and he or she will go over what we’ve learned. After that, the lines of communication are wide open if you want to talk more. You’ll even have your portfolio manager’s personal cellphone number in case you have a question about RRSPs (or fantasy football)…”
This is where it gets tricky. ROBO is asking someone to upload personal financial information to a company with which they have no business relationship. So many questions enter my head. How secure is it? Besides reading my statements and analyzing them, what else are they doing with my personal information? Are they building a database? Will they be using this data to curate and sell me products like that Socially Responsible Portfolio above?
The whole thing has a Facebooky feel to it. The more info you provide, the more the ROBO can build up a profile of people like you and potentially target products … higher priced products, that may or may not be in your best interest. It has a sort of bait-and-switch where they lure you in with free and then have a captive audience to sell you their service.
We’ve been interviewing contractors the last few months for some reno work we would like to do on our house: every contractor that comes in has told us the previous people who did our kitchen or painted the place or laid the roofing down did a horrible job and that they would never do anything like that. This narrative I suspect is something of a tone I’d expect to hear from the ROBO if it looked at my financial portfolio. I wouldn’t be surprised if they said their methodology is vastly superior than anything I or my own adviser has come up with.
Having said that, I’d be quite curious to see what my ROBO thinks of my finances. I’ll have to ponder that.
In the case of my own portfolio evaluation service, I look at client investment information but after I’ve worked with the client I delete it, shred it, or even return the statements to the client. I’m not going to lie, I am going to introduce them to my company’s value proposition and see if there is opportunity to further work together; however, my value proposition revolves around teaching and education. I’m not selling an ETF or stock or mutual fund or target wrapped account. I’m selling my time to help them become more financially savvy with investing their hard earned money. I can’t compete with free and I won’t compete with free. My time is valuable and I, like any other self-respecting person or entity, would expect to be appropriately compensated for the work effort put into it.
I never really thought about how these type of services could up-sell me. I have been focussing more on the mechanics of how the ROBO service is investing my money. But as I can see with my experience, it appears this up-selling program is a very central component of their business model, no different from a cell-phone company or a cable company or a traditional bank. Get them in with cheap fees but then move them up the fee scale. I will be playing close attention to how ROBO continues to try to upsell me and convince me to tweak my portfolio or even to get me to switch teams. It’s a dynamic that I don’t see getting discussion and of which investors should be cognisant.
Aman Raina, MBA is an Investment Coach and founder of Sage Investors, an independent practice specializing in investment coaching and portfolio analysis services. This blog was originally published on his website on June 27 and is reproduced here with permission.