In the wake of the financial crisis, a slew of so-called robo-advisors promised consumers a fully automated version of money management that purports to remove human error—and avarice—from the equation. Instead of a human broker making decisions about how to invest your money, companies like Betterment and Wealthfront let algorithms do it. Experts have speculated the fiduciary rule would benefit robo-advisors by making the compliance costs too great for money managers to justify holding onto smaller clients. Robo-advisors that can perform much the same function at a lower cost would likely gobble that business right up.
In a 2015 Congressional hearing, then-Labor Secretary Tom Perez repeatedly cited Wealthfront as the way of the future. “They have a platform that enables them to lower their fees, operate as a fiduciary and do well by doing good,” Perez saidat the time.
“Today’s announcement of a rollback or freeze on some of those rules probably will shrink the market for robo-investing,” says former California state senator Sam Blakeslee, president of the broker-dealer Blakeslee & Blakeslee.
“This is a sad day for individual investors. Repeal of the fiduciary rule would imperil the retirement savings of millions of Americans,” Jon Stein, founder and CEO of Betterment, said in a statement. “Repeal means favoring the bottom lines of the financial services industry over the American people, who deserve financial transparency and honesty.”