November 26, 2021

Caveat Investor: Regulators Slam Automated Advice Firms

In a November 10, 2021 article for Financial Advisor magazine, Tracey Longo reported that the Securities Exchange Commission (SEC) slammed almost all “Robo-Advisors” with deficiency letters.

Robo-Advisors are low-cost digital investment advisors offering automated advice with little or no human interaction.

Deficiencies noted in the SEC risk alert include those centering on robo-advisors’ fiduciary duty to provide advice in each client’s best interest, compliance programs, and inadequate disclosures about the human element of their services.

Marketing and performance advertising was a focus of the SEC warning to investors. Examiners gave particular attention to whether or not robo-advisors were upholding their fiduciary duty to provide clear and adequate disclosure regarding the performance history and nature of the advisors’ services and act in their clients’ best interests. Exams uncovered the fact that more than 50% of robo-advisors had advertisement-related deficiencies, including misleading statements and “vague and unsubstantiated claims.”

Moreover, many robo-advisors failed to periodically evaluate or update whether or not accounts are still being managed based on clients’ needs. Robos also failed to inquire about any changes in investors’ financial situations or investment objectives, the SEC found.

“When robo-advisors fail to comply with their regulatory obligations … investors may experience poor outcomes,” the SEC said.

Shadowridge Asset Management, LLC is not a Robo-Advisor. We discourage the use of these automated computer programs because the biggest problems in the financial markets are caused by events that are unexpected and therefore cannot be neatly programmed into computers. To ensure that our proactive actions are undertaken solely in your best interest, each of our trades is planned and reviewed by humans, fiduciaries to you.

If you are not yet a client of Shadowridge but want true fiduciary service, where your best interests are always our priority, call the office today to arrange a portfolio review and consultation. The number is 888-434-1427. Call now, before problems in the market have affected your investments.

Source: SEC Slams Almost All Robo-Advisors With Deficiency Letters. https://www.fa-mag.com/news/sec-slams-almost-all-robo-advisors-with-deficiency-letters-64832.html

* The model accounts mentioned in this article are hypothetical examples of how the strategy may work as designed. Performance and activity in client accounts may be different from that in the model in amount of each investment, specific timing of trades, and actual security used, which may vary from account to account. Not all trades are profitable. It should not be assumed that current or future holdings will be profitable. A list of all trades in these accounts for the past 12 months will be provided upon written request.

** Indexes are unmanaged lists of stocks considered representative of a broad stock market segment. Investors cannot invest directly in an Index.

This newsletter may contain forward-looking statements, including, but not limited to, statements as to future events that involve various risks and uncertainties. Forward-looking statements involve known and unknown risks, uncertainties and other factors which may cause actual events or results to differ materially from those that were forecasted. Information in this newsletter may be derived from sources deemed to be reliable, however we cannot guarantee its accuracy. Please discuss any legal or tax matters with your advisors in those areas. Neither the information presented nor any opinions expressed herein constitute a solicitation for the purchase or sale of any security.

In all investing, past performance cannot assure future results, and as such, our efforts are not guaranteed. Losses can occur. All strategies offered by Shadowridge Asset Management, LLC, adapt to changes in the markets by changing the investments they hold, therefore, comparisons to broad stock market indexes such as the unmanaged indexes mentioned may not be appropriate. Sometimes client accounts are invested in stocks or markets not included in these indexes. Past performance does not guarantee future results. Investment return and principal value will vary so that when redeemed, an investor’s account values may be worth more or less than when purchased. Mutual fund shares and other investments used in our managed accounts are not insured by the FDIC or any other agency, are not obligations of or guaranteed by any financial institution and involve investment risk, including possible loss of principal. Advisory services offered through Shadowridge Asset Management, LLC, a Registered Investment Advisor. Adviser will not transact business unless properly registered and licensed in the potential client’s state of residence.