Members of Congress on Wednesday criticized the Department of Labor’s support of so-called robo advisors, saying the online automatic investment tools were not an acceptable alternative to face-to-face interactions with human advisors.
“I don’t think, like some, that this [fiduciary rule] is going to bring financial ruin for an entire population. But at the same time, I don’t think that the proposed rule, as presented, will accomplish what it intended without some negative consequences,” Rep. Mark Pocan (D-Wis.) said Wednesday during a hearing on the potential impact of the rule, which is due to be finalized in the first half of 2016.
One negative consequence, according to Pocan, is the idea that robo advisors could be used as a primary source of advice by investors who may no longer be served by human advisors in the wake of the rule, as implicated by Labor Secretary Thomas Perez.
“The fact that they offered that website as an answer implicitly suggested that is where people will be driven to under the rule and, to me, that’s unacceptable,” Pocan said.
He argued that method of obtaining advice was not something that most people are going to be able to use effectively, sharing his own experience with a robo interface.
“It stuck in my craw that someone was saying go to this website—I won’t say the website they mentioned—and I go to it and I answered eight questions about my willingness to lose money. That’s all they asked,” Pocan said.
“If I wanted to retire at 62, if I want to have a second home, those are questions that when I did it on the computer, they don’t answer. And then when I call, they still don’t answer because that’s not part of their model,” he added. “I thought that was one of the worst answers the Department [of Labor] gave. That is not an alternative.”