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Selecting a Financial Adviser or Robo-Adviser

Robo-advisersSome individuals turn to a financial services professional for help with investing. Before settling on a financial planner, investment adviser or broker-dealer, ask the following questions:

  • What are your qualifications? You can verify an adviser's licensing and registration by calling the Indiana Securities Division at 1-800-223-8791 or use the searchable databases online.
  • How are you compensated? Fee-based professionals charge an hourly rate, or a fee based on the performance of the funds they are managing. In comparison, commission-based professionals earn a commission each time they buy or a sell a product for their clients.
  • Do you have a fiduciary duty? There are two standards of care in the financial services industry: suitability requirement and fiduciary duty. Under the suitability requirement, financial professionals must offer products appropriate to their client’s needs, goals, and risk tolerance level. However, they are not obligated to act within the best interest of their client, meaning they can push investments that secure a higher commission for them but may not provide the highest returns for the client. Under a fiduciary duty, financial professionals must offer products in the best interest of the client, meaning they put the needs of the client before the needs of their employer and themselves. Fiduciary duty is the highest standard of care in the industry.
  • Do you understand my needs? Legitimate financial professionals will want to understand each client's unique needs, goals, and risk tolerance levels before offering any investment advice. Typically, you will complete a suitability assessment of some type for the financial professional to better understand your financial goals. You should be leery of working with anyone who offers you investment advice before understanding your needs.
  • Can I get it in writing? Every investment opportunity should come with a prospectus or circular outlining the details of the investment. Investment professionals who don’t want to put it in writing may not be legitimate and should send up a red flag in your mind. Once you enter an investment, be sure to closely examine your financial statements for suspicious activity.

You should walk away from a person who hesitates to answer any of your questions. When it comes to your hard-earned money, you can never be too careful. Finding a legitimate investment professional, you feel comfortable with and can trust should be a top priority.


As an alternative to live financial services professionals, investors are increasingly turning to robo-advisers to help them manage their portfolios. Contributing to their popularity, smartphone apps and online portals make setting up an account with a robo-adviser convenient and quick. The term “robo-adviser” refers to electronic platforms that provide automated investment advisory services to customers pursuant to computer algorithms developed by the platform sponsors. Robo-advisers thus in effect replace the roles of financial services professionals with computer algorithms. In so doing, robo-advisers may be able to offer useful services at comparatively low cost.

Things to Consider when Investing With a Robo-Adviser

Even though robo-advisers offer a service that allows you to take a more passive approach to investing, you should continue to monitor and adjust your portfolio according to your needs. Handing off your investments to a robo-adviser and putting them on autopilot may yield unexpected or undesirable results. It is also important in selecting a robo-adviser to consider the extent to which you will need personalized investment advice or interactions with a financial services professional. Before you choose to use a robo-adviser, reflect on these questions:

  • Does the robo-adviser build a portfolio based on your financial goals while considering your appetite for risk? When you invest, you should always keep track of your investments and ensure your portfolio meets your long- and short-term needs.
  • Are you comfortable and familiar with the types of investment products the robo-adviser will use to build your portfolio? Research and understand the investment products the robo-adviser you are considering uses before you invest.
  • Do you like discussing ideas or asking questions when seeking financial advice? If so, be sure you understand the level of human interaction you will get with the robo-adviser you are planning to use.
  • Do you want the ability to make decisions based on market fluctuations? With robo-advisers, you may not have the ability to buy and sell securities in your account as the market moves up or down.
  • Are you considering any tax consequences that you may encounter for investment losses and/or gains? When investing, you should consider your yearly tax situation. You may want to talk to a tax consultant to better understand how using a robo-adviser may affect you.
  • Are you comfortable and familiar with the robo-adviser’s fee structure and compensation model? You should know how much you are paying for the robo-adviser’s services and how these costs will affect your returns over time.

Robo-advisers are relatively new to the investing landscape. As with any new service, you should thoroughly investigate to make sure they are right for your investment needs. Before making any financial decisions, ask questions and do your homework.