Tucker says that Americans with smaller account balances would suffer if the industry goes that way.
“I don’t see how proprietary robo-advisors could be considered as fiduciaries—how do Vanguard and Fidelity tell their robo-advisors to recommend their proprietary funds when there might be an alternative that better fits the client’s best interest?” Tucker said. “Without commission-based advice in the broker-dealer or captive agent world, I don’t see how those small account folks are going to get the benefit of advice.”
He is not alone in questioning the purported objectivity of low-cost robo advisors. Massachusetts Attorney General William Galvin has opened an investigation into the practices of robo advisors. Galvin has indicated he will evaluate their application to register in Massachusetts on a case by case basis.
Yet the debate over the rule has taken place in the absence of those account holders—and largely outside of the public consciousness, said Edwards.
“This has been a battle entirely behind closed doors, and that’s part of the reason it’s such an important debate,” Edwards said. “Previously, Mr. and Mrs. America didn’t know about the fiduciary standard until someone like me realizes they’ve been totally hosed by the costs of an investment. They’re largely oblivious. I don’t have any expectation that when this rule finally goes through, the public will notice any difference.”