Bogleheads® Live
Dan Egan: robo-advisor conflicts of interest
Jul 25, 2022
Dan Egan, VP of Behavioral Finance and Investing at Betterment, dives into the hidden conflicts of interest within robo-advisors. He explores how these automated platforms may compromise unbiased financial advice, discussing payment for order flow and its implications. Egan emphasizes the necessity for transparency in investment management, urging clients to be cautious of seemingly free services that may come with hidden costs. He also highlights the importance of personal engagement alongside technology in making sound financial choices.
35:47
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Quick takeaways
- Conflicts of interest in robo-advisory arise primarily from compensation structures, highlighting the need for transparency in fee disclosures.
- Understanding the balance between automation benefits of robo-advisors and the value of personal investment engagement is crucial for informed decision-making.
Deep dives
Understanding Conflicts of Interest in Robo-Advisors
Conflicts of interest in the robo-advisory sector often stem from how advisors are compensated and how they structure their services. It's critical to recognize that no advisor setup is perfectly aligned with clients’ best interests. For example, while Betterment aims to provide independent advice by avoiding commissions associated with fund complexes or broker-dealers, they still face inherent challenges related to transparency. Knowing the fee structures and potential hidden costs, such as payment for order flow, can empower investors to make informed decisions when selecting a robo-advisor.
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