Massachusetts’ chief securities regulator is pushing back against automated investment services, saying it’s not clear that they can act in the best interest of clients.

So-called robo-advisors may be inherently unable to act as fiduciaries and perform the functions of a state-registered investment advisor, Secretary of State William Galvin said in a statement Friday. The state plans to evaluate such advisors seeking registration on a case-by-case basis.

“Entities that create computer-generated portfolios but fail to do the necessary customer due diligence to know their customers and who specifically decline most if not all the fiduciary duty are not performing the duties of investment advisors,” Galvin said.

The policy applies primarily to fully automated services, according to the statement.

Web-based “robo-advisors” such as Betterment and Wealthfront use computer algorithms to lower the cost of recommending investments for customers. Their annual fees for advice are generally a third or less of what human advisors charge, typically 1 percent of clients’ assets. The lower price is in part why the market for digitally based advice is expected to grow to $285 billion by 2017, according to researcher Aite Group.


Vanguard Group and Charles Schwab Corp. last year started their own automated services. Fidelity Investments began testing a service this week on existing clients, which it plans to release publicly in coming months. Bank of America Corp. and Wells Fargo & Co. are developing programs, too.

Companies are taking different approaches. At Vanguard, investors answer questions online and then must speak with a professional before their portfolio is implemented.

With others, customers can open an account in minutes without any human interaction.

Firms that don’t collect a lot of information about their clients may receive increased scrutiny from states like Massachusetts, said Sean McDermott, a senior analyst at research and consulting firm Corporate Insight in New York. But it may not be a negative for the industry.