07/29/2014 05:14 pm ET Updated Dec 06, 2017

Robo Financial Advisers Want Wall Street's Trillions

Brand name firms scoffed at Amazon when it claimed it would change the way people buy books. The big box bookstores are not scoffing anymore. Most of them have gone out of business or they are struggling to survive the Amazon juggernaut.

Robo Financial Advisers (RFAs) are making a similar claim. They want to change the way people buy financial advice and services. Once again, they are employing the power of the Internet to attack traditional, brick & mortar business models. But, this time there is a critical difference. Wall Street has 700,000 financial advisers and stockbrokers who will fight tooth and nail to protect their enviable lifestyles.


Wall Street Culture

What is at stake is Wall Street's powerful sales culture that dominates the financial services industry. It is said; financial products are sold and not bought. Nobody goes to the mall to buy mutual funds -- that business model failed years ago. Someone has to convince investors to buy and that person directly or indirectly works for a Wall Street firm.

Wall Street Corruption

Wall Street is notorious for greed and corruption. Its multi-millionaire executives have trampled the interests of its clients. And, the sales culture makes all of the corruption possible. It is easy for skilled salesmen to convince naïve investors to buy garbage products that charge excessive expenses. Why sell garbage products? They pay the biggest commissions and produce the largest amounts of revenue, profit, and executive bonuses.

Achilles Heel

This may be Wall Street's Achilles Heel if enough investors are fed-up with the abuse. Most of the RFAs do not employ salesmen who solicit investors. Instead, they depend on the content of their websites to sell their services. How refreshing is that? No aggressive salesmen selling garbage products for big commissions. That could appeal to a lot of fed-up investors, in particular younger tech-savvy investors who have seen years of headlines documenting one abuse after another.

Buyer Beware

Of course, investors still have to be careful. A lot of Robos are not that forthcoming with the information you need to make the right decisions. They may withhold information they don't want you to have. Or, they may misrepresent information to look more successful than they really are. But, this is nothing compared to the deceptive sales tactics that are used by Wall Street's legions of salesmen who masquerade as trustworthy financial experts.

Research Reports

At Paladin, more than 20 Robos that provide online financial advice and services have been researched. These one-of-a-kind research reports contain a Transparency Index that measures the amount of information that is provided by each firm and how easy it is to access and understand the information.

Is the information on the website or buried in a 30 page Terms of Service document? Do you have to view the Robo's ADV on the Securities and Exchange Commission website to obtain the information you are seeking? Robos can make this process easy or difficult. Transparency should impact your selection decision.

A New Wall Street

It will take years for the Robos to make a dent in the trillions of dollars that are controlled by Wall Street. But, cracks are already starting to show. Vanguard, the $2 trillion mutual fund family, has already rolled out a Robo-type service and Charles Schwab just announced they are building one. Other brand name firms are sure to follow.

If they succeed, they just might change a Wall Street sales culture that has been abusing investors since 1975.

About the Author: Jack Waymire worked in the financial services industry for 28 years. For 21 years he was the president and chief investment officer of a registered investment advisory firm with more than 50,000 clients. He left the industry in 2003 when his book, Who's Watching Your Money? was published by John Wiley. That same year he launched an investor information website PaladinRegistry that was based on the principles in his book. Jack is a columnist for Worth magazine, a frequent blogger on major financial sites, and widely quoted in the media including the Wall Street Journal, Forbes, BusinessWeek, Bloomberg, and Kiplinger. Follow Jack on Twitter @PaladinRegistry