For years financial advisers have been using the tactic that they have some secret intelligence when it comes to investing client money. This scene from the “Big Short” wonderfully portrays this tactic:

Whether it is a local adviser or one of the big Wall Street firms.  The scene is the same, the adviser reviews the client investment information, and then during a meeting with the client, they tell the client they will,  or their “quant”  will, or their portfolio developer will, create a  personalized investment portfolio built for them in a couple weeks.

Clients think that the advisory team is spending hours of time reading tea leaves, running computer models and creating a unique solution for the client. This is generally presented as the asset pie similar to the one below:page1-1200px-Asset_Allocation.pdf

The reality is most portfolios look the same. The reason is that most advisers are using mean variance optimization (MVO) software to create the portfolios.  MVO is software that will look at what mix of investments have provided the highest return for a given level of risk over a period of time.   Note: proper MVO use does require an understanding of how it works and a responsibility to use it properly.

But, the bottom line is that because most investment firms are using the same tools, portfolios look very similar, a 60% stock portfolio at one Wall St firm looks similar to all the other 60% stock portfolios. Just compare a Target Date funds between the large mutual fund families. They all look very much alike. Portfolios are commodities.

This is why the idea of “Robo” advisors has started to become popular.

A “Robo” advisor is an advisor service  (Betterment, Wealthfront,  Vanguard, Schwab, Fidelity) where a client logs into a robo web site and gives information on what they are investing for, the length of time to invest and then they answer some questions to assess risk and BAM! The “Robo” produces a portfolio, with some form of MVO software, that looks like the one shown previously above.

What “Robo” advisors have simply done is remove the curtain and expose the wizard.


Robos basically remove the facade of the quant in the back room working on the client portfolio.

In fact, most investors have always been getting a robo portfolio but paying, in most cases, 4x or more of the cost. Of course, the human advisor has nice offices, luxury boxes, tickets to events, nice advertising campaigns and nice cars, houses and yachts.

More and more consumers are realizing that the wizard is an illusion and they would rather pay lower fees with a robo, keep more of what they earn and own a yacht before their advisor owns a yacht.

Finally, an advisor can justify their fee if it is not only for portfolio management. A good advisor should help with proper portfolio allocation, but they should also provide financial planning, tax strategies, cost minimization, insurance, Social Security and Medicare planning.

Advisors who only do portfolio management and charge 1% of the assets managed are not providing anything that can’t be purchased for less.