What is the WSJ Editorial Board Smoking?

“Mr. Perez has suggested in hearings that customers can receive robo advice instead. Seriously. We’re not sure we trust Siri of iPhone fame as a stock picker. We’d prefer the flesh and blood adviser who may have been recommended by a friend.”

Editorial, The Wall Street Journal May 17, 2015

In the immortal words of Flavor Flav “Yo, Chuck,they must be on a pipe, right?”

The WSJ May 17 editorial goes way beyond any previously published nonsense about how small investors will be ill-served if advisors are forced to act in their best interests if the Department of Labor’s Fiduciary rule is approved.  Either they are under the influence, or they are being blinded by the massive amount of advertising dollars the brokerage industry tosses their way. I suspect the latter.

The board clearly does not understand the concept of robo advice or is just clouded by their obvious conflicts of interest in this matter. Mathematical investing algorithms are not at all like asking Siri: “Who makes the best pizza?”

Robo advisors do not pick stocks like some ruddy-faced broker touting his firm’s top choices for 2015. They create asset allocation strategies based on time frame and risk tolerance. These globally diversified portfolios are constructed with low-cost index funds that look to match, not beat the market. A strategy backed up by decades of data.

In a nutshell, the small individual investor is receiving an institutional-like portfolio for a very small price. Some firms like Charles Schwab offer this service for free. Other established institutions, like Vanguard,  charge 30 basis points (0.30%) with a low minimum investment.

Upstarts like Wealthfront and Betterment have no investment  minimums and offer their services at very competitive prices. Through the wonder of modern technology, today’s small investors have access to a product that was not in the dreams of most a decade ago. The dream has become reality. This is much to the discontent of the brokerage  dinosaurs from a past age that couldn’t even spell the word transparency.

The WSJ seems to believe that their version of a “flesh and blood advisor” is in the best interests of  investors. They ignore the fact that human beings work at the abovementioned firms and are available to speak to investors, if necessary.

The WSJ conveniently did not mention the fact that the robo advisors don’t offer such products as Class A, B, and C  loaded mutual funds; illiquid and overpriced private REITS; and high-cost variable annuities stashed in already tax-deferred retirement accounts.

Bloodsucker would have been a better choice of the wording for WSJ’s board. They also  neglect to mention the reasons  robo’s do not offer these products.  This is  because unlike the flesh and blood ”advisors”, they don’t receive 5-10% commissions on sales of these investments along with Caribbean Cruises for exceeding monthly quotas. These facts are conveniently left out of this editorial.

They also neglect to mention the hundreds of RIA’s who have adopted robo advisors into their business models. They want to service the small investor and create an advisor’s version of a “farm team” for future growth. Far from being left to Siri, there are firms out there like Ritholtz Wealth Management who incorporate robo advice while also servicing seven-figure accounts.

Founders Josh Brown and Barry Ritholtz provide some of the best original investing content on the web. It is more insulting than factually inaccurate  to imply firms like this would turn away the small investor or provide inferior service.

The WSJ’s arguments remind me of those who fought tooth and nail against the Civil Rights movement and stood as a stubborn road block to democracy. They are on the WRONG side of history. It seems like the blatant misstatement of the facts are the dying gasps of a business model that knows its days are numbered. Not unlike the cries of a doomed triceratops trapped in a prehistoric tar pit.

The apologists and sycophants who continue to spew such nonsense will eventually be overwhelmed by the tide that is slowly gathering momentum behind them. As Joe Louis once said, “You can run but you can’t hide.” Hiding the truth can only work for so long.

I find it very disappointing that a paper with such a proud history and legacy of brilliant reporters would be so blatant in ignoring the facts. Like the members of both political parties who object to this rule, they also have their price. It is a shame they are putting advertising dollars above the needs of many of their readers.




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