Robo-advisors are adding human planners in call centers to aid their clients—but they’re still falling short of existing regulations, industry officials say.

Most robo-advisors still fail to meet the requirements of the fiduciary standard and the Advisers Act of 1940, but the industry should learn to live with those  shortcomings, says Scott MacKillop, CEO of Denver-based First Ascent Asset Management.

The Advisers Act states that fiduciary investment advisors owe clients a duty of loyalty, to place a client’s interests ahead of the advisor’s, and a duty of care, to act with competence and diligence that would normally be exercised by a fiduciary in similar circumstances. MacKillop says the key to fulfilling both of these duties is knowledge of client.

Kevin Keller, CEO of the CFP Board, said robo-advisors easily meet that first requirement as they generally lack self-interest.

“Unless, to borrow an idea from Google, they’re programmed to be evil, I don’t see a robo-advisor having a problem,” Keller says. “A digital platform can deliver advice in a way that meets that duty of loyalty, but the duty of care is a much higher hurdle to clear. There’s still a debate to be settled.”

Digital advice providers are being bought by traditional financial firms and external interests, opening up the possibility that these once consumer-friendly platforms may one day be used for more self-serving purposes, says MacKillop.

“The worst that can happen is that we all come to accept that a mechanical portfolio management process that doesn’t involve personalized advice somehow satisfies the Advisers Act’s requirements,” MacKillop says. “As soon as we do that, we open the door for market timers, high-fee product makers, bad actors and anyone else who can get out there with a risk tolerance questionnaire and an internet connection to start providing financial advice.”

MacKillop says that most robo-advisors should not be treated as advisors: Robos lack the ability to make diligent, competent judgments and aren’t able to sufficiently know and serve clients because they’re limited in their ability to collect information.

Robo-advisors typically collect demographic information about the client, then use a risk tolerance questionnaire to select an allocation for a retirement portfolio. But Matt McGrew, chief operations officer for Ada, Mich.-based USA Financial, argues that the questionnaires lack the human intuition required to accomplish the task.

“I don’t know if I’ve ever seen a questionnaire get to the heart of risk tolerance,” says McGrew. “They can provide answers in terms of clients’ feelings about downside risk, but risk tolerance is a more complex question. Most people might end up moderately risk tolerant, but do they understand what that means for their allocations?”

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