How Financial Associations Are Failing Us All #1-Robos Have No Rules

I felt motivated to write down some concerns regarding the direction of the personal financial planning profession and the lack of support provided to members in a changing world from associations. I do not know how many articles I’ll end up with, hopefully at least 10 before the year is out. These are areas that we have moved away from financial freedom and security, which financial planning associations have largely stayed quiet on despite the harm they are causing to their members and the public at large.

I want to start by saying these opinions are my own and I recognize any consequences of stating them. There are many that do not want to be criticized for inaction and spending their time on 'safe' issues like promoting deductions that will never materialize.

With the push toward government-run or endorsed investment accounts and schemes that remove planners and individual choice only progressing, it is too important of a topic to continue to ignore.

While it is my opinion that the sole group advancing the interests of the profession with proposals in the interest of the profession at the moment is CFP Board (in general, I do disagree with their support of the DOL Fiduciary Rule), most other associations have turned over the last year to a sort of ‘derangement syndrome’ when it came to any thought that government may allow for more freedoms, preferring to spend their time not promoting their interests. I don't understand why since their job is promotion of planning, but given the hyperbolic responses to any ideas at this point I can only assume their lack of action is caused by a feeling that doing so may be seen as a 'political win' for those they generally disagree with.

This can be seen in their intricate responses to the CFP Board fiduciary proposal while having no criticism of the harmful government DOL rule, the use of their press releases to proudly “slam” ideas from politicians of opposite stripes (and to retweet several times articles saying they “slammed” those politicians), so-called ‘fiduciary leaders’ and intellectuals encouraging “fighting” politicians who propose taking time to study an issue or who simply were elected from an opposition party, and far too often relying on hyperbole and spreading outright Marxist (and silly) articles and ideas (“Trump is stealing your 401(k)!”) as though they represent actual news instead of hysteria.

Leadership of financial associations is gone, replacing the action of addressing real concerns that planners have regarding their profession and their ability to help the most number of people meet their goals with political venom.

The first example in this article are the conflicts that associations like the Financial Planning Association (FPA) have ignored for far too long with online trading platforms (robo-advisors). These will be quickly written blogs (since it’s a busy time of year!), so excuse grammar errors.

I’ve been meaning to write about the robo-advisor for some time. To give context, I view them as impersonal, gimmicky and expensive accounts that are no different than mutual funds at a higher cost.

In the past I viewed them largely as a good entry point for those with smaller accounts to start to work with a paid service. Once they released the limitations of the service, they often would go search for a professional whose tools and methods have always been vast superior to the shoddy wiring beneath the fancy surface of the robo.

Today I see them as operations that have been able to avoid marketing and operational laws that I need to follow, a source of political conflict with the rules they support to regulate financial advisors that they themselves will never follow (and for some reason think they have no reason to fear following), and a source of conflict between financial advisors and the associations that should be representing them and promoting a level playing field, but, sadly, don’t seem to be interested in that when a robo sends them sponsorship dollars.

Below are just a few conflicts in the robo world that associations like the FPA have ignored which have and will yet impact their members.

Misleading Advertising

For far too long these firms have been able to advertise gimmicks that financial professionals would both not be allowed to market. They claim their service provides tax benefits that any ethical CPA would call dubious at best, and breaking the intent of tax law at worst.

One such advertising scheme that robos built their initial value proposition on is the idea of “tax loss harvesting” the concept that if you sell a fund at a loss you can take a tax loss.

What the robos do not share is that their scheme replaces the sold index fund with an index fund that invests in nearly the same mix of stocks or bonds. An aspect of tax loss harvesting that nullifies the loss is buying substantially identical securities. While there is no technical guidance here, most ethical advisors will admit the use of similar index funds is not in the spirit of the law, if not outright in violation.

Next, the robos and their harvesting needs to incorporate all accounts a client has, including heldaway accounts. The benefits for many who use index funds in their 401(k)’s where buying happens automatically and twice a month would be limited by the rule that the loss will be disallowed if a substantially identical security is bought within 30 days before or after.

Finally, the purported benefits of this strategy have been illustrated by robos using the top tax rates in the top tax states. Meaning, they unethically showed the benefits to the highest income earners in the highest taxed states, when most believe their target market is those without much disposable income to invest in early stages of their lives.


Robos and politics go hand-in-hand. Robos need regulators to look the other way . Politicians love automating things so that they can control them and profit from donations related to the benefits they give.

When promoting a Fiduciary Rule by the DOL that should shut them down, the robos donated to politicians, obviously expecting benefits in return.

I’ll leave this issue here since I don’t have much specific that I can point to, but a degree of this video from a Canadian robo that has been deeply ingrained with the highest levels of government. I'm rarely shocked by something like this; I imagine many will choose not to believe variations don't happen here (just don't watch video of your DOL supporting non-fiduciary robos).

Already, some robos have had board members from government. Clearly they are aware of the revolving door and government capture theories where firms provide ‘show-up’ jobs to retiring politicians who gave them an advantage over their competitors while in office.

Robos heavily pushed this Fiduciary Rule on their competition, knowing that while they are not and can not provide a fiduciary level of care that they were inflicting harm on their competitors.

Meanwhile, the Financial Planning Association, NAPFA, and others have had nothing to say about the unlevel playing field provided to robos. I have spoken to advisors and experts in fiduciary who privately acknowledge that they know robos are not held to any standard that advisors are, and that they only are quiet on the issue because they do not and will never serve clients who do not have millions of dollars to invest, and therefore don’t care about what robos do.

It seem to me to be ‘group think’ driven by what many who held the belief that the DOL rule needed to be passed by any means necessary, as they necessarily had to ignore the hypocracy of the past DOL head promoting the robo-advisors in front of Congress, while proposing laws that should put their services out of business (there is no way a robo is analyzing their benefits versus a rollover from a 401(k) plan and coming to the conclusion that paying them more than a 401(k) index fund is worthwhile).

This attitude of associations to stay quite and not rock the boat with sponsors who are actively lobbying against members and being held to lower standards will harm planning and planners that try to expand the reach of their services, as well as freedom in the options available to those who do not hire planners.

Future Fiduciary Conflict

As noted above, the CFP Board has proposed changes to their membership to assume that clients require financial planning services.

Meanwhile, robo-advisors do not provide financial planning services. Robos have added CFP® professionals to their platforms (while other more reputable firms that actually seek to comply with the rules have stopped offering financial services when faced with conflicts), some will just offer ‘advice’ via text or email.

Clearly, these CFP® professionals will not be complying with this change, yet the robos have moved forward with their program still.

This is the attitude of firms that know they are not going to be held to any standard in any meaningful way. Advisors have paid significant costs to defend themselves for ‘advertising’ that is far less than the obvious tax scam that robos have claimed provides a benefit, they will not be fiduciaries and yet associations look the other way as they push more regulations on their human competitors.

Where are the associations that are for more personal planning?

I think they’re conflicted in where they get their revenue. More on the failures to support planning proposals in the tax reform, the removal of accounts that promoted advisors and freedom, and other topics soon…


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