Are Robo-Advisor Programmers Fiduciaries?

Posted on November 18th, 2015 at 1:57 PM
Are Robo-Advisor Programmers Fiduciaries?

This article was originally published on November 16, 2015 on Financial Advisor by Ted Knutson.

With robo-advisors gaining steam, should the computer programming wizards behind them be held to a fiduciary standard?

Talk to experts and you get a firm, “sometimes.”

One professional in the “yes” camp is Andrew Stoltmann, a Chicago-based securities and investment fraud attorney who sits on the board of the Public Investors Arbitration Bar Association.

“If a firm outsources recommendations to a robot, it better make certain that robot is properly programmed to exclusively recommend a diversified asset allocated portfolio,” said Stoltmann.

He said—half in jest—that an army of well-trained, ethical robots could put him out of business because most of the cases he brings against advisors charge they have instituted non-diversified, non-asset-allocated buckets of investments for their clients.

Another Windy City securities law attorney, James Eccleston, who represents both investors and advisors, said if a roboadvisor is giving recommendations, a computer programmer should be held to same the standard as a broker if the techie is acting in concert with compliance and legal personnel.

“Ordinarily, a programmer is one small cog in wheel,” he said.

But that caveat goes away for Eccelston if the programmer is literally a one-person robo operation.

Financial planning blogger and Western Kentucky University finance professor Ron Rhodes noted programmers don’t have the relationship of trust and confidence that flesh-and-blood advisors do, yet they have been sued for aiding and abetting fraud.

Michael Chadwick, an advisor in Hartford, Conn., argued robo-advisors shouldn’t escape the ethical obligations he works under.

“I worry about this stuff. If they are producing a product that the public is going to try to use to improve their financial outcomes, they should be held to the same standards we are,” said Chadwick.

Andy Cullison, director of the Prindle Institute for Ethics at DePauw University in Greenscastle, Ind., said he is seeing the debate over ethical standards for programmers all across the technology industry where computer programs are taking on decision-making roles.

“It's not unique to the finance industry,” Cullison said.

 

Related Attorneys: James J. Eccleston

Tags: Eccleston, Eccleston Law, Eccleston Law LLC, James Eccleston,

Return to Archive

TESTIMONIALS

Previous
Next

We just wanted to say thanks for your work in helping us get back some of the money we lost. We are not by any means rich, but we have saved some money and we have done so through a tight-fisted approach to most everything we do. So losing a significant chunk of money hurt…especially at a time when everyone else was growing their accounts. We really appreciate the work you did.

Allan and Adele

LATEST NEWS AND ARTICLES

April 18, 2024
SEC Fines Target Off-Channel Communications

The Securities and Exchange Commission (SEC) is ramping up its enforcement efforts targeting off-channel communications, particularly text messages, among investment advisory firms.

April 17, 2024
B. Riley Financial Again Delays Filing Audited Results

B. Riley Financial Inc. has encountered a setback in filing its audited results within an extended timeframe, adding to existing pressure amid concerns raised by short sellers regarding its association with a former business partner.

April 16, 2024
Former Wells Fargo Advisor Accepts Industry Bar Amidst Misuse of Client Funds Allegations

A former advisor with Wells Fargo Advisors Financial Network (FiNet) in Chicago, Jayson R. Pocius, has agreed to accept an industry bar rather than cooperate with a
Financial Industry Regulatory Authority (FINRA) investigation into allegations of misusing client funds.