(The number of risk profile questions asked by robos in 2015 to obtain asset allocations ranged from Hedegeable’s high of 16 to Betterment’s and AssetBuilder’s low of 4 questions, according to a recent study by Cerulli Associates. Schwab’s Intelligent Portfolios asked 12 questions; Wealthfront and FutureAdvisor (now under BlackRock) asked 7; and SigFig asked 6 questions. Cerulli researchers noted that the number of initial questions might be misleading, since investors are sometimes asked more questions after they sign up, but before they invest.) It’s strange when questionnaires ask hypothetical questions such as: “What would you do if the stock market drops 20%?” that can count as KYC. Such questions are intended to gauge a client’s psychological tolerance for risk, but what actually happens depends on the situation. A fiduciary’s job is to de-risk before such a scenario occurs and deter clients from selling in a panic, in other words — they should help clients act against behavior bias. Yet, if this is their objective — why would a fiduciary recommend a portfolio that caters to the bias in the first place? This is the broader issue with placing clients into pre-determined buckets. While the assets under management at robo advisors remain a tiny fraction of the market (barely 1% of overall investable assets in the U.S.), managed accounts have been widely adopted, especially by broker-dealers. Just moving from a commission account to a fee-based account with an additional risk tolerance questionnaire does not equal sufficient KYC or suitability measures. As more wealth management firms apply automated investment tools on smaller accounts, we realized that true KYC is still enjoyed by only high-net-worth and ultra-high-net-worth clients. Perhaps the next generation of robo advisors, be it direct-to-consumer or geared toward advisors, will know their customers before asking them to commit. Read more here.