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Robos Are Also Subject to Fiduciary Duty

The SEC releases guidance on robos, advisors aren't talking to clients enough about risk, and there may be a looming retirement crisis.

The Securities and Exchange Commission released guidance related to "robo advisors" as well as an Investor Bulletin for investors considering using the automated investing platforms. Robos are registered investment advisors, subject to the same fiduciary obligations as other RIAs, the SEC says. The guidance provides them with suggestions on meeting disclosure, suitability and compliance requirements. The Investor Bulletin brings up important issues investors should consider, including the level of human interaction, the information the robo uses in creating recommendations, the robo’s approach to investing, and the fees involved. “This information is designed to help investors tap into the opportunities that fintech innovation can provide while ensuring fairness and investor protection,” said SEC Acting Chairman Michael Piwowar.

Advisors Aren't Talking to Clients Enough About Risk

FinMason, a fintech and analytics firm, suggests advisors are not having adequate conversations with clients about risk. A survey FinMason conducted of 492 investors who work with a financial advisor found that only a quarter had been told how much their portfolios could lose if the stock market crashed. Of those who did have that conversation with their advisor, 62 percent said their loss would be less than what their stated exposure to equities would suggest. The survey also found that 57 percent of clients are likely to panic and sell if the next crash is anything like the one experienced in 2008. "This is setting up the same way as it always does. The market will eventually crash, maybe not today or even soon, but when it does, investors will feel upset, betrayed and litigious,” said Kendrick Wakeman, CEO and founder of FinMason. "I understand that many advisors don't want to potentially scare their clients with talk about possible volatility in the market. But, if an advisor has a conversation about a crash now, in the light of calm markets, they can have a very rational discussion of why it is important to take that risk.”

Is There A Looming Retirement Crisis?

Copyright Spencer Platt, Getty Images

The decades-long shift away from pensions to 401(k)s is heavily contributing to a "looming retirement crisis," according to a CBSnews article on a Census Bureau research report. Analyzing the 2012 tax records of 155 million workers and 6.2 million companies, researchers Michael Gideon and Joshua Mitchell found that over 66 percent of workers with access to 401(k)s and defined contribution retirement plans aren't using them. As if that weren't bad enough, Gideon and Mitchell also found that the number of employers offering 401(k) plans is actually a lot lower than previous estimates of about 40 percent. The actual number, according to their research? Fourteen percent.

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