Buckle up, this isn’t a three-minute read–but will be well worth it if you’re a client or considering being a client of a financial professional. If you already read Part 1 of this series, chances are you feel both daunted by the challenge but also encouraged by upside, available tools and products to go at it alone as a self-directed investor.
In this second part we’ll look at the reality of a portion of professional wealth management services and give a thorough treatment of the pluses and minuses so that you can make an informed decision that’s right for you. For some readers, it will be eye-opening to know more of the ‘menu’ of options and how each role differs. For example, the difference between a “fiduciary” and “non-fiduciary” financial advisor can lead to drastic differences in your wealth and client experience due to the gap in binding regulation and incentive structure for each type of role.
While the goal here is to provide a meaty introduction to wealth management services, some professions, titles, and providers will be left out lest this one-sitting article turn into a book. As much as we find them interesting and worthy of discussion, family offices, accounting firms, private banking, private equity, hedge funds, angel investing, offshore investment firms, and private credit will not be covered in this article.
It’s worth noting and emphasizing that this article and associated seminar given by Prof of Wall Street is not nor should be construed as financial advice. Each individual person is unique as is their circumstances and future financial state so it is critical for you, the reader, to consider this in light of your own situation and consult with whomever you believe will provide you the best outcome as you define it.
Do Financial Professionals Have Biases?
People often believe that professional investors and wealth managers are immune to behavioral biases and therefore can be entrusted with money. Our founder, Dr. Amos Nadler, was giving a talk for a large public university’s investment committee about behavioral biases and their consequences on performance when a chemistry professor on the investment board interjected (read: interrupted) by saying that none of these biases are relevant because the university has “professional fund managers”.
When shown evidence in the very presentation that professionals are prone to biases that lead to major consequences to their clients (Haigh and List 2005), the heckler was disturbed to learn that their pension was vulnerable to the managers’ biases and that those biases probably are not being addressed institutionally.
Before launching further into this section about professional wealth management, it’s important to start with why this topic is important and our approach to discussing it.
Why is this topic important?
First, most people feel overwhelmed by all of the factors that go into financial decision making and genuinely need help from professionals who can, at least partially, help them navigate through complex situations and provide guidance.
Financial advisors generally know more than the average person about investing. But this knowledge doesn’t necessarily translate to higher portfolio performance or clients buying the “right” financial products largely because of mismatch of incentives.
There are exams and certifications needed to be allowed to serve people as financial advisors (e.g., Series 7), which make them at least knowledgeable about investment and financial product options. However, people often overestimate financial advisors’ actual financial knowledge and assume strictly from their certification and/or credentials that they are experts in various topics and can correctly interpret and respond to highly complex situations (e.g., impact of 2025 Trump tariffs on domestic vs. international equities returns).
In regards to who does better between self-directed investors and people who have financial advisors, one paper (Hackethal, Haliassos, and Jappelli 2012) suggests that advised accounts offer on average lower net returns and inferior risk-return tradeoffs (often measured in Sharpe ratios) and another showed no difference (Kramer 2009). While there are benefits from having an advisor when the interests of the advisor and household are aligned, the general agency problem persists and may negate the value of the relationship (Finke 2012).
Relatedly, wealth managers harness behavioral economics to sell products and services to clients, yet don’t seem to employ the discipline towards improving portfolio performance with the same zeal (Statman 2017), a status quo we at Prof of Wall Street set out to change.
Because of this, our approach at Prof of Wall Street is research- and evidence-based, not a marketing or sales process. This means that we research topics to better understand them first, then make decisions second. There is a specific academic paper that initiated significant concerns about financial advisors. Eventually published in the Journal of Finance (Foerster et al. 2017), the abstract from the NBER version states:
“We find limited evidence of customization: advisors direct clients into similar portfolios independent of their clients’ risk preferences and stage in the life cycle. An advisor’s own portfolio is a good predictor of the client’s portfolio even after controlling for the client’s characteristics. This one-size-fits-all advice does not come cheap. The average client pays more than 2.7% each year in fees and thus gives up all of the equity premium gained through increased risk-taking.”
It was this, and another related paper using likely the same dataset (Linnainmaa, Melzer, and Previtero 2020) that got us not only curious but frankly concerned about the economic value clients receive from financial advisors. The authors find that “Advisors’ net returns of −3% per year are similar to their clients’ net returns.”
It is with this evidence-based lens that we approach the topic and the knowledge that research aggregates findings in a manner that individuals cannot directly apply and therefore might need help understanding their own situation. We have seen our own family members being sold unsuitable financial products, our friends lose significant sums from the decisions made by their advisors at major financial institutions, and a lack of appetite from fee-incentivized advisors to try to improve account performance to better serve the everyday client. This is why we at Prof of Wall Street offer advisor evaluation analytics so that you, the client, can get a clear, independent view of your own account performance and be able to identify your advisor’s biases and their impact on your wealth.
Should I Trust: Financial Advisors?
What benefits have researchers found?
Despite these findings that financial advisors do not provide clients with benchmark beating performance and often recommend products unbefitting them, financial advisors can provide services that extend beyond equity portfolio performance that provide meaningful value not captured in this type of analysis.
For example, guidance on how to effectively use retirement accounts to reduce tax burden can be valuable and increase lifetime wealth. Also, there is evidence in a German study that financial advice enhances portfolio diversification (Bluethgen, Gintschel, and Hackethal 2008).
Some financial advisors and planners offer personalized strategies and ongoing support for retirement planning by helping clients set clear retirement goals, calculate necessary savings, and create customized investment plans aligned with individual risk tolerances and time horizons. Advisors also assist in developing retirement income plans that balance different sources like 401(k)s, IRAs, pensions, and Social Security and help optimize retirement benefits, potentially maximizing lifetime payouts.
Financial advisors can also contribute to tax efficiency. They help structure tax-efficient withdrawals from retirement accounts and implement strategies like Roth conversions and tax-loss harvesting (In Canada, advisors can maximize tax savings through the strategic use of registered plans like RRSPs and TFSAs). They assist in tax-efficient investing by utilizing various accounts with different tax treatments and employing tactics such as tax-loss harvesting. This particular area might be the most difficult to ‘learn by doing’ because feedback on wrong decisions is noisy or non-existent. While only a minority of people do, learning how to make tax-smart decisions early in life can set you up for long-term benefits, even stretching into the next generation with proactive estate and will planning (Poterba 1997).
Beyond retirement and tax planning, financial advisors offer expertise and time savings. Advisors provide access to advanced financial knowledge and tools, handling complexities so clients can focus on other priorities. One of the implicit benefits of an advisor is the emotional support and guidance: During market volatility or uncertainty, advisors offer advice to help clients stay focused on long-term goals. At Prof of Wall Street, we offer behavioral financial technology that functions similarly by providing a decision framework that ensures investors’ decisions are consistent with their objectives, which includes not reacting to price changes with panic selling, for example. Further, ongoing monitoring and adjustments along the way are valuable as advisors regularly review and adjust financial plans to align with changing circumstances, market conditions, and regulatory updates.
Helpful for most people, including those who are self-directed investors, is “comprehensive financial planning” offered by some advisors. This is the big picture approach that takes into consideration all factors beyond investments, including insurance needs assessment, estate planning, and budgeting assistance. On that note, most people don’t have a household budget and getting help setting one up can alleviate the stress from not knowing how much can be spent on any particular category over a particular time period.
Another, recent service provided at the advisor level and empowered by research in risk preferences and nascent behavioral technology is matching portfolio risk and return parameters based on the individual, family, or entity parameters. This is critical to appreciate as it’s easy to benchmark performance against, say, the S&P, but despite its long-term performance, it might be too risky for some investors who would benefit from reducing price risk in exchange for lower expected returns. If an advisor treats you as a “one-size-fits-all” approach, chances are that your unique needs will not be considered and the outcome might not serve you in a customized way.
Now that you have more background and context for what benefits financial advisors provide, it is worth asking two critical follow-up questions: What is the quality of each of these services, and what is the price?
Both factors are critical and, unfortunately, non-obvious. The quality is not clear because financial advisers do not willingly benchmark themselves for easy comparison. This is what motivated the Prof of Wall Street team early on to offer advised clients guidance on what questions to ask, what data to request, and the analytics and interpretation to help people understand the quality and costs. If you’re interested in having your financial advisor evaluated and curious what a report provides, get in touch to see an example.
Registered Investment Advisor (RIA)
A Registered Investment Advisor (RIA) is a specific type of financial advisor in the US who has fiduciary duty. Fiduciary duty is a legal term that means that the provider must act in accordance with the client’s best interest even if that recommendation, action, or policy is not in favor of the RIA. Whether an advisor has fiduciary duty or not drastically changes the type of advice they are likely to give to the incentive structure. RIAs are sometimes fully independent (although they use an institutional custodian to ensure compliance and reduce the risk of them having direct access to your funds).
Registered Investment Advisors specialize in managing investments and creating portfolios tailored to your risk tolerance and financial goals. Some investment advisors are skilled in portfolio management and can offer sophisticated investment strategies, while others lack meaningful sophistication when it comes to investing strategies. If your focus is on Investments, RIAs provide a focused service that may be more efficient than broader financial planning. Unlike financial advisors or wealth managers, they may not offer comprehensive financial planning services.
One of our favorite RIAs is an experienced manager and also a finance professor at Columbia, Dr. Harry Mamaysky, who after years of managing institutional capital, provides investment and wealth planning services through his firm, QuantStreet Capital. The reason we like his approach is manifold, but the customization of portfolio volatility is a perfect example of matching individual preferences and providing a customized portfolio that is good for the particular client.
While there is potential for high returns, it is highly unlikely that your portfolio will beat standard passive benchmarks (e.g., the S&P). There are three main reasons for this:
- Inability to generate outperformance: Most financial advisors lack the active management skills to consistently beat a benchmark through active management and/or stock selection.
- Fees: The costs of managing your portfolio, fees, and trailers ‘eat away’ at your principal.
- Following best practices: despite the desire to get the highest possible returns on your investment, it might not be appropriate to invest your money in such a way to earn the highest return possible without taking on extraordinary risk.
Non-Fiduciary Financial Advisors
Financial advisors (FAs) are regulated by FINRA and SEC, may be held to a “suitability standard”, and some are subject to Regulation Best Interest since 2020, which is a higher standard but less strict than fiduciary duty (this is in contrast with a Registered Financial Advisor, discussed above).
Financial advisors have a broader range of financial services, and may include insurance, retirement planning, and general financial planning. They can buy and sell securities for clients and are compensated through commissions on product sales and often charge fees for services.
If your FA does not have fiduciary duty, we suggest asking them to sign the fiduciary pledge to align your incentives and increase your peace of mind. If they refuse to sign it, consider seeking a financial advisor who is an RIA or acts in a fiduciary manner.
Before working with an advisor, please take a moment to check to see if they have had any violations filed against them. FINRA, an industry group that self-enforces professional standards and reports on advisors publicly in a service called BrokerCheck and can be found here.
There is a minority of truly criminal financial advisors, but the number of those cited for violations is higher than we expected. A recent paper shows that one in fifteen advisors has committed a violation overall, and as high as one in six (!!!) in particular parts of the US (Egan, Matvos, and Seru 2024). The most famous crook of the recent financial past is Bernie Madoff, who’s best known for running a Ponzi scheme and losing his clients’ (read: victims’) money. A book by the same name as this article recounts the criminal behavior of a financial advisor (the husband of the author, no less). This type of behavior is not the norm and should not scare people from working with a financial professional. That said, it is critical to ensure that incentives and fees are transparent to you.
“A Guy”
On a recent call, a colleague shared timeless advice he received from his father: “Never trust your money to ‘a guy’”.
Most people think of fraudsters like Bernie Madoff when they hear about Ponzi schemes, but many advisors regularly break the rules without making headlines. To avoid getting caught in a bad investment scheme or dealing with someone flagrantly untrustworthy, here are a some key checks:
Verify Registration and Licensing: Don’t just take their word for it—confirm they’re registered with regulatory bodies like the SEC (U.S.), FINRA, IIROC (Canada), or FCA (UK). Use databases like FINRA’s BrokerCheck or the CSA’s National Registration Search to look them up.
Scrutinize the Investment Strategy: If it sounds too good to be true, it probably is. Watch out for claims of consistent, high returns regardless of market conditions. If the strategy is vague, overly complex, or can’t be explained in plain terms, that’s a red flag. That said, we have analyzed portfolio managers who outperform the market across various regimes after analyzing their data with signed attestations and deep, verifiable trading histories.
Know Where Your Money Is Held: A legitimate advisor doesn’t personally hold your funds. Instead, they use a reputable third-party custodian (such as Schwab). If you can’t independently verify your balance or withdraw funds without going through them directly, that’s a potentially serious problem.
Check for Past Regulatory or Legal Issues: A little research goes a long way. Look up whether they’ve faced disciplinary actions, lawsuits, or have a history of firm-hopping—frequent moves can be a sign of trouble.
Demand Transparency on Fees and Performance: How are they getting paid? A legitimate advisor should provide a clear breakdown of fees, commissions, and incentives. If you’re only seeing cherry-picked performance numbers instead of verifiable track records, be skeptical.
Watch for Pressure Tactics: Scammers love urgency—“act now” and “limited-time opportunity” are classic red flags. A real investment opportunity will still be there after you’ve had time to think it through.
Verify Independent Audits: If it’s a fund or private investment, check if they have third-party audits from a reputable firm. No audits, shady auditors, or inconsistent reports? Walk away.
Get a Second Opinion: Before committing, run it by an independent financial professional or even a knowledgeable peer. A fresh set of eyes can spot risks you might have missed.
What about incentives?
As with all professional services, it is critical to consider counterparty incentives. There is extensive research on the incentives of financial advisors showing that clients and advisors have misaligned incentives and that clients end up bearing the brunt of the suboptimal compensation structure.
There is a fascinating economics paper that evaluated thousands of real estate transactions and shows that real estate agents sell client houses faster and cheaper relative to their own homes (Levitt and Syverson 2008). How is this related to financial advisors?
Check it out: The incentive for a financial advisor to produce higher returns as the client portfolio manager are lower relative to the gains from acquiring a new customer. Imagine a client with one million dollars with an advisor and the advisor is earning one percent (100 basis points, 1%) for managing that money ($10,000) per year.
To improve portfolio performance the advisor would need to invest effort and/or give up basis points to another portfolio manager or outsourced CIO (OCIO). If the advisor can spend the same amount of time pursuing new clients and increasing assets under management (AUM) then their payoffs are likely much higher. If the manager improves performance for a specific client they improve performance by 2%, they earn $200. But to acquire another client with the same portfolio size of $1M, they earn an additional $10,000 of revenue for the firm.
Financial Advisor Red Flags
🔻 Churning: excessively trading in a client’s account to generate commissions, often resulting in unnecessary costs and losses
🔻 Tricky Reporting: Money-weighted returns instead of time-weighted; providing improper benchmarks from which to measure “relative performance”
🔻 High-Fee Products: Selling high-MER mutual funds instead of equivalent ETFs
🔻 Unsuitable Recommendations: Recommending products that aren’t right for you
🔻 Refusal to sign and abide by fiduciary oath
🔻 History of violations (https://brokercheck.finra.org/)
Financial Advisor Green Flags
🟢 Acting as a fiduciary – Prioritizing your best interests over their own compensation or incentives, making prudent portfolio decisions on your behalf, presenting the pros and cons of your options, and always using clear, understandable language
🟢 Providing clear benchmarks for success – Defining what financial progress looks like beyond just performance comparisons.
🟢 Making a sincere effort to understand your entire wealth universe, including alternative assets
Taking the time to know your risk preferences, risk capacity, and recommend appropriately (i.e., customization)
🟢 Transparency – Clearly disclosing fees of all types and ensuring that you understand them along with clearly explaining any potential conflicts (e.g., commissions, affiliations with specific products).
🟢 Providing education and empowerment – Helping you understand financial concepts rather than just making decisions for you.
🟢 Regularly reviewing and adjusting your plan – Ensuring your financial strategy evolves with your life changes and market conditions.
🟢 Encouraging patience and discipline – Steering you away from emotional decision-making and short-term speculation.
🟢 Proactively communicating – Keeping you informed about market events, portfolio changes, and financial planning updates.
Seeking Win-Win with Advisors
At Prof of Wall Street we aim to help financial managers improve their performance rapidly, painlessly, and cost-efficiently by providing instant insights about investing patterns that can be acted upon to improve performance for hundreds if not thousands of clients. We discuss this in depth in an article titled “Behavioral fintech for financial advisors”.
The phrase “data is the new oil” is attributed to British data scientist Clive Humby to emphasize that, like crude oil, data must be refined and analyzed to create valuable insights. Each and every financial advisor has incredible potential to improve their investing performance, and the first step lies in unlocking the value in their data.
The second step to improving performance is using a repeatable investment process that is compliant with client expectations, needs, and goals. At Prof of Wall Street we designed the first guided investment tool for investors that guides investment decisions to achieve better investment results, and actively seek to collaborate and work with financial advisors so that their clients receive the best service and portfolio performance possible.
If you already have an advisor, we would like to offer you this resource to ensure that your incentives are aligned and increase your sense of safety around your own finances.
Should I Trust: Financial/Wealth Planners?
Wealth planners help individuals and businesses manage and proactively create their financial future. They focus on creating comprehensive financial roadmaps across various income levels, offering services such as budgeting, retirement planning, tax strategies, and saving for specific goals like education or homeownership.
They focus on lifestyle planning and foundational financial advice, helping clients practical steps to realize whatever they state is important to them.They help clients set financial goals and provide actionable advice, though they often leave the implementation to the client or other advisors, such as IRAs and tax specialists.This specialty often uses financial planning software to help clients stay on track that provides transparency of expenses
It’s important to note that while wealth planners and financial advisors share some similarities, wealth planners typically offer a more comprehensive approach to financial management–they not only create plans but also regularly review and adjust strategies to ensure they align with clients’ evolving financial objectives
From an incentive perspective, wealth planners generally do not benefit from sales of financial products (and some we have spoken with at Prof of Wall Street refuse to take referral fees at all in order to maintain objectivity and client-focus). They generally operate independently without ties to specific financial products or services, which allows them to provide objective, comprehensive financial advice tailored to each client’s unique circumstances. This is viewed as a net benefit to this financial specialty as the concerns about suitability and corrupt incentives are weak.
The cost of wealth planning services varies based on several factors, including the type of services offered, the complexity of your financial situation, and the planner’s credentials and experience. Despite low incentive misalignment risk, “bad advice” can be severely detrimental, so references and some verification with current and/or past clients can help mitigate this potential risk.
Should I Trust: Mutual Funds and Active ETFs?
The origins of mutual funds trace back to the Dutch Republic in 1774, when Amsterdam-based broker Adriaan van Ketwich established the first pooled investment trust, Eendragt Maakt Magt (“Unity Creates Strength”), designed to provide small investors access to diversified investments. Modern mutual funds emerged in the United States with the establishment of the Massachusetts Investors Trust in 1924, which introduced redeemable shares and simplified capital structures, becoming a blueprint for open-end funds.
In theory these investment vehicles, managed by professionals, promise to provide investors a reliable investment vehicle, but should you trust mutual fund and/or ETF managers with your money?
By buying a specific fund, either directly or through a financial advisor, you are delegating the performance management to individuals and the processes, technology, and approach they employ. From research on mutual funds, their performances are not empirically better than modern day alternatives such as ETFs.
The facts about actively managed funds squarely point towards underperformance relative to passive funds with higher fees. That isn’t to say that performance is the only metric that matters, as risk-adjusted performance is important to many. Nonetheless, investors should be aware when they are buying into funds they are often buying into the people running it.
Mutual fund managers’ performance is influenced by their investment strategies and the ‘anomalies’ they exploit. Research shows that funds concentrating on high gross profitability stocks (GPIM) generate significantly better returns, with top-quintile funds outperforming bottom-quintile funds by 0.22% monthly (0.28% alpha) (Kenchington, Wan, and Yüksel 2019). However, the average fund underperforms four-factor benchmarks by ~65 basis points annually, highlighting the challenge of consistent alpha generation. Manager changes also impact performance: replacing underperforming managers often leads to improved returns, particularly in small-cap, growth, and emerging market funds, though “loser” funds tend to persist in underperformance post-change (Clare, Sapuric, and Todorovic 2008). These findings suggest performance depends on both stock selection skill and organizational factors.
Fund managerial incentives are shaped by implicit and explicit mechanisms. Implicit incentives stem from the convex flow-performance relationship, where top performers attract disproportionate inflows, encouraging risk-taking and tournament behavior. Explicit incentives include compensation structures, though advisory contracts predominantly use fixed asset-based fees rather than performance-linked options. Portfolio managers themselves often receive bonus-based pay aligned with theoretical predictions, creating tension between short-term performance chasing and long-term value creation. Career concerns further distort incentives, leading to suboptimal risk management and herding behavior to avoid underperformance relative to peers (Ma, Tang, and Wang 2024).
Behavioral biases exacerbate these incentive misalignments. The “tournament effect” drives excessive risk-taking as managers chase top-quintile rankings, mirroring convex flow rewards. Window dressing and portfolio pumping emerge as strategic responses to disclosure requirements, where managers artificially inflate quarter-end holdings to impress investors. Persistent underperformance in “loser” funds suggests overconfidence bias, as managers delay corrective actions despite sustained negative alphas. These biases compound agency problems, often prioritizing asset growth and career security over investor returns. As mentioned earlier, professionals display some of the same behaviors that non-professionals do, such as investing in lottery stocks (Agarwal, Jiang, and Wen 2022).
In summary, fund managers have a complex incentive and work landscape in which they seek to optimize their own personal gains and balance institutional benefit. At the end of the day, buying a fund means also buying into the fund’s complex operational environment. Chances are the fund managers follow stricter protocols and processes than retail investors, who might adopt simple heuristics and manage portfolios in a behavioral fashion, but this is no guarantee that any particular fund will provide risk-adjusted returns better than a common, passive benchmark.
Note: mutual funds tend to be sold and carry meaningfully higher fees in the form of management expense ratios (MERs) and commissions. Some funds have near-equivalent ETFs which have lower fees of both types so it is worth exploring the EFT alternatives whenever possible.
Should I Trust: Commodity Trading Advisors (CTAs)?
A Commodity Trading Advisor (CTA) is a financial professional or firm registered with the National Futures Association (NFA) to provide personalized advice on trading futures contracts, options on futures, and certain foreign exchange contracts. CTAs specialize in managing client funds in managed futures accounts (MFAs) or other pooled investments like hedge funds and commodity pools. Their approach to trading on clients’ behalf is through analyzing commodities markets, studying trends, and making trading decisions based on their own trade signals and ideas.
Working with a CTA offers several advantages: CTAs have knowledge and experience in trading, which can be challenging for individual investors to get without significant commitment. They have access to advanced trading tools, research resources, and market data that enable them to make informed decisions. CTAs also provide potential diversification benefits, as their strategies often have putatively low correlation to traditional assets like stocks and bonds. Some CTAs have demonstrated an ability to generate positive returns during periods of market stress, offering “crisis alpha” potential.
If you have a CTA you’d like to work with, ask them for their track record prior to any engagement. CTAs are required to provide their track record to prospective clients as part of their mandatory disclosure obligations. Under U.S. regulations, CTAs must deliver a Disclosure Document to potential clients before entering into an advisory agreement. This document includes detailed information about the CTA’s trading program, fees, conflicts of interest, and most importantly, past performance data for all accounts directed by the CTA or its principals over the past five years (or since inception if less than five years)
However, there are also drawbacks. CTAs typically charge both management and performance fees (similar to hedge funds), with management fees usually ranging from 1% to 2% of assets under management and performance fees around 15% to 20% range which significantly impact overall client returns.
Additionally, CTA returns can be characterized by long periods of modest gains punctuated by occasional large winning trades, which may not suit all investor preferences. CTAs can also experience prolonged drawdowns, particularly during choppy, trendless markets. Many of the CTA strategies are trend following, so if there’s no trend, performance could be poor.
To address the incentive and compensation concerns, some CTAs use high-water marks or hurdle rates to align their interests more closely with those of investors. Additionally, regulatory bodies like the NFA and Commodity Futures Trading Commission (CFTC) oversee CTAs to ensure compliance with regulations and protect investor interests.
In conclusion, while CTAs can offer valuable expertise and potential diversification benefits, investors should carefully consider the fee structure, performance characteristics, and potential incentive misalignments when deciding whether to work with a CTA. It’s advisable to thoroughly research a CTA’s track record, risk management approach, and regulatory compliance before making any investment decisions.
If you’d like Prof of Wall Street to evaluate your CTA’s trade data, reach out.
Should I Trust: Artificial Intelligence & Robo-Advisors?
In much the same way as discussed for self-directed investors in Part 1 of this series, artificial intelligence (AI) is changing the game drastically for financial advisors and wealth management.
The use of AI is not new in wealth management, but the explosion in use cases from large language models (LLMs) and other areas is worth knowing. Artificial intelligence is transforming wealth management by leveraging machine learning, deep learning, and natural language processing to enhance investment decisions, risk management, and client interactions. Machine learning models like reinforcement learning and gradient boosting optimize portfolio allocation by adapting to market conditions, while deep learning techniques help identify patterns in asset prices and detect anomalies. Financial institutions also use natural language processing models to analyze earnings calls, news sentiment, and social media data, providing asset managers with insights beyond traditional financial metrics.
Beyond investment strategy, AI plays a role in fraud detection, regulatory compliance, and client engagement. Graph neural networks and anomaly detection models track unusual transaction patterns, helping firms combat financial fraud. Artificial intelligence techniques might improve transparency by making AI-driven decisions interpretable for both regulators and investors. Large language models, combined with retrieval-augmented generation, are also being used to enhance client interactions, providing personalized financial planning and real-time investment insights. At Prof of Wall Street we are developing an AI model that can deliver customized insights in real time to help investors proactively make the optimal decision.
As AI continues to evolve and find new use cases, its integration into wealth management is reshaping how investment professionals and clients navigate financial markets and work together. Let’s take a look at automated asset management firms known as “robo-advisors”.
The term robo-advice was first introduced during the Great Recession, mainly in order to differentiate it from the legal implications of traditional financial advice (Abraham, Schmukler, and Tessada 2019). These digital platforms provide automated, algorithm-driven financial planning services with minimal human intervention. They typically offer investment management, rebalancing, and tax-loss harvesting.
Robo-advisors generally charge lower fees and have low minimum investment requirements, compared to human advisors, making them accessible to a broader audience and are user-friendly, often with intuitive interfaces that make investing simple. They seem to perform well as portfolio rebalances and with tax-loss harvesting.
At present, there is a lack of meaningful personalization. They lack the nuanced, personalized advice that a human advisor can provide, primarily focus on investment management and may not offer comprehensive financial planning services. If you prefer speaking with a person to understand your investments, robo-advisors might not be for you. A 2025 study found that commercial robo-advisors prioritize simplicity and client perceptions over complex, normative models (Scherer and Lehner 2021).
More critically, the rise of robo-advisors requires consumers to understand their technological and performance limitations and continue to get proper financial education, as this technology is not meant to be a substitute for financial literacy (Abraham, Schmukler, and Tessada 2019). Perhaps unsurprisingly, study about who uses robo advisors suggests that overconfident investors seem to drive a considerable part of the early expansion of robo-advice in the US (Piehlmaier 2022).
Should you use a robo-advisor? First, ask yourself, “What problem(s) am I trying to solve?”, then consider the best approach. If low financial literacy is the problem, robo-advisors won’t fix it. If the problem is that you want to delegate portfolio rebalancing instead of fussing with it yourself, then a robo might be the way to go.
Conclusion
So should you trust professionals with your money?
The general take-away for AI and robo-advisors is the same as for traditional, humans advisors and managers: as much as we like delegating complex tasks to other people and technology, it is still our responsibility as decision makers to be financially literate, make unbiased, evidence-driven decisions, and to validate our assumptions about the quality of service we are getting. At Prof of Wall Street, we seek to provide analysis and guidance to make informed decisions about investment and delegation and extend an open invitation if you’d like to look deeper into your own advisor (human or robo).
Choosing the right type of financial professional depends on your financial goals, investment experience, and personal preferences. Whether you prefer the hands-on approach of a wealth manager or the low-cost efficiency of other advisor types, understanding the pros and cons of each option is key to making an informed decision.
Trust is paramount, so take the time to research, ask questions, and ensure that your money manager aligns with your financial objectives. Please (please!) use our free resources to ensure alignment from your financial professionals and reach out if you have questions or want a deeper, data-driven look at your data.
Citations
Abraham, Facundo, S. Schmukler, and José Tessada. 2019. “Robo-Advisors: Investing Through Machines.” World Bank: Research & Policy Briefs (Topic), no. 134881 (February). https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3360125.
Bluethgen, R., A. Gintschel, and A. Hackethal. 2008. “Financial Advice and Individual Investors’ Portfolios.” https://papers.ssrn.com/sol3/papers.cfm?abstract_id=968197.
Clare, A., Svetlana Sapuric, and N. Todorovic. 2008. “The Impact of Manager Changes on Fund Performance.” https://www.academia.edu/download/101732762/The-impact-of-manager-changes-on-UK-fund-performances.pdf.
Kramer, Marc. 2009. “Investment Advice and Individual Investor Portfolio Performance.” SSRN Electronic Journal. https://doi.org/10.2139/ssrn.1341945.
Linnainmaa, Juhani T., Brian T. Melzer, and Alessandro Previtero. 2020. “The Misguided Beliefs of Financial Advisors.” The Journal of Finance, no. jofi.12995 (December). https://doi.org/10.1111/jofi.12995.
Ma, Linlin, Yuehua Tang, and Yuan Wang. 2024. “Managerial Incentives in the Mutual Fund Industry.” SSRN Electronic Journal. https://doi.org/10.2139/ssrn.4733046.
Piehlmaier, Dominik M. 2022. “Overconfidence and the Adoption of Robo-Advice: Why Overconfident Investors Drive the Expansion of Automated Financial Advice.” Financial Innovation 8 (1). https://doi.org/10.1186/s40854-021-00324-3.
Poterba, J. M. 1997. “The Estate Tax and after-Tax Investment Returns.” https://www.nber.org/papers/w6337.
Scherer, B., and Sebastian Lehner. 2021. “What Drives Robo-Advice?” SSRN Electronic Journal, March. https://doi.org/10.2139/ssrn.3807921.