This column is about robo advisers. But let’s start with an ugly truth about the advisers, humans included, who are held by law to the fiduciary standard.

They don’t always behave like fiduciaries—that is, always putting the client’s interest first—no matter what the regulations dictate.

The trust department of a major bank, for example, manages money for a friend of mine. Her…ahem…adviser recommended she put some of it in an exchange-traded fund that tracks the S&P 500, but he steered her away from his firm’s own lower-cost fund and into an external fund that charges a lot more in annual fees.


Like that trust department, robos are fiduciaries, because they are typically set up as registered investment advisers. But I assume the challenges are different for organizations that rely on computers rather than individual advisers with discretionary authority over client portfolios.

Can machines really put clients’ interests first; act with prudence, care, diligence, and good judgment; not mislead clients; avoid conflicts of interest; and adequately disclose and manage the ones that exist?

Kate McBride, who chairs the Committee for the Fiduciary Standard, stresses that fiduciaries also “monitor investments,” review portfolios with clients on a regular basis, and ensure costs are reasonable.

Total disclosure: Given my past career as a financial adviser, I doubted automated online investment services could make prudent decisions about risk profiles. Their questionnaires are so short, their asset allocations so instant. How can they be fiduciaries if they don’t know what makes their clients tick?

“The digital experience is quick,” acknowledges Bo Lu, CEO and co-founder of FutureAdvisor, a San Francisco-based robo adviser.

But there’s a second algorithm behind the scenes, he explains, which monitors how clients are using the website. Do they log in? Do they visit the page dedicated to their long-term goals? Or, if the markets are crashing, do they check their performance every 30 seconds?

From its behavioral finance models, FutureAdvisor can then assess how clients are reacting to risk 24/7. Traditional “advisers know what clients say. We know what clients do,” says Mr. Lu.

That’s a great observation.

But what about those crashing markets? Putting clients’ interests first, it seems to me, requires the soft skills of wealth management. That is, reaching out to clients, helping them make the uncomfortable decision to stay the course even though their stomachs are screaming, “Bail!”

In these cases, FutureAdvisor’s systems flag nervous investors and alert internal advisers with industry expertise. They, in turn, reach out to the clients. Mr. Lu describes this process as “white glove service around the edges.”

I like the personal touch, the acknowledgment that algorithms cannot respond to humans like, well, humans. And FutureAdvisor is not alone. There are other robos that combine machine code with people.

Among them is Schwab Intelligent Portfolios, which is part of the Charles Schwab Corp. It uses a blend of internal and external ETFs. It does not charge wrap fees but shares, instead, in the underlying management fees.

“The robo adviser’s not going to get on the phone and be your psychiatrist,” says Michael Cianfrocca, a managing director at the organization. But he adds that Schwab’s product offers clients the option to speak with people 24 hours a day, 365 days a year.

Perhaps the robots are really “cyborgs.”

To continue reading, click on the Wall Street Journal.