In the not so distant past, professional financial advice and investment management were only available to households with sufficient wealth. This began to change a decade ago, when startup financial firms digitally automated the investment management process, enabling them to offer professionally managed portfolios at low costs and low to no minimums. Fast forward 10 years and nearly every major financial institution in the United States either offers or owns a stake in a robo advisor. The individual who previously had no access to such investments is now overwhelmed with choices. Below, we provide insight into the most important factors one should consider when selecting a robo advisor. If you are unfamiliar with robo advisors or how they work, we suggest you first read our post, What is a Robo Advisor?
Identify Your Goals and Priorities
Investment providers offer various levels of service that go beyond investing. Before choosing among them, it is important to identify your personal and financial objectives. Are you planning to save, invest, or do both? Are you doing so to build wealth or to pay for retirement or education expenses? Do you need financial planning assistance? If so, do you want help from a live planner or are you comfortable primarily working with online tools? It is important to identify your goals clearly and then find a robo that can match your needs.
Perhaps the most important consideration when choosing a robo is determining why you are investing. The most popular reasons to invest are to grow wealth, build a nest egg for retirement, or fund future education expenses. Each goal has beneficial strategies, starting with the type of account used to invest. Make sure the provider you choose offers the account types that are best suited to your goal. And if you are looking to invest with or on behalf of a family member, many providers offer joint or custodial accounts.
Robo advice products can fall into one of two buckets: digital-only or hybrid. Digital-only robos are completely automated, while a hybrid robo advisor combines the algorithmic technology of a robo with the personal touch of a live advisor. Many providers offer both digital-only and hybrid services. Digital-only robos often have user-driven digital financial planning tools. These tools typically allow users to view a holistic financial picture, set personalized goals, and more. However, even the best digital tools are often not as comprehensive as what a professional can provide. It is also important to note that not all live help includes comprehensive planning services. Some live help is purely tech support. Be sure to look for professional designations, such as Certified Financial Planner (CFP), when looking for live advice options.
The amount of planning that you need will depend largely on the complexity of your financial situation and how comfortable you are managing your finances. If you feel that you will need professional planning services in the future but not now, numerous robos offer digital-only products with the option to graduate to a service level with live advisors down the road. To help investors make educated decisions, we ranked the best robos for digital financial planning and the best robos for complex financial planning needs.
Robos, initially an investment management solution, have ventured into banking. The more tech-savvy upstart firms, in particular, have been expanding. The main offering has been high-yield savings accounts, some of which pay over 20 times the interest a typical bank will pay. If you have excess cash that is earning no interest, a high-yield savings option is an attractive additional feature.
Lately, some firms have started to roll out checking accounts and debit cards. They hint that more robust cash management is coming, including the ability to accept direct deposits, pay bills, and route money to your investment and savings accounts automatically.
Performance and Portfolio Options
No matter why you invest, performance is important. There are a variety of providers out there and many providers have multiple portfolios to choose from, such as socially responsible investing (SRI), active investing, and income investing, to name a few. Some robos also offer themed portfolios that target a certain cause or social philosophy. Our Robo Report and Robo Ranking include real performance data on portfolios (including many of the more specific options) that we have open with 40 different robos and is the best, unbiased source for performance reporting.
Our SRI and active portfolios have performed better, on average, than their standard, passive counterparts over the one year period ending the third quarter of 2019. However, both SRI and active portfolios have higher weighted average expense ratios than the passive options, on average. As the age of the SRI and active portfolios mature, we will be able to better compare the performance of these offerings and see if their performance continues to outweigh their higher fees.
Fees, Costs, Minimums
Most robos charge a percentage fee for every dollar they manage. This fee will vary at different service levels, and some robos lower their advisory fees if a user hits a certain dollar threshold. A select few charge a flat monthly fee. If a platform employs this pricing structure, then higher asset levels drive down the fee as a percentage of assets. For example, if a robo charges $1/month and a user invests $1,200, then the fee as an annual percentage would be 1% (12/1200 X 100), which is higher than most robo advisors charge. However, if the user has $12,000 invested, pays that same $1/month, and then pays 0.10% (12/12000 x 100) as a percentage of assets, this fee is cheaper than that of the average robo.
Make sure you are paying low fees. Even a modest reduction in fees can leave you with thousands more dollars down the road. So, if you are paying more, make sure the value from doing so is worth the extra cost.
The costs of the underlying funds are also a pricing factor to consider. Not all funds are created equal; some are much more expensive to own than others. Management fee and average expense ratio information can be found in our Robo Report and Robo Ranking as well as in a table below.
Transparency and Conflicts of Interest
Although pioneered by startups, robo advice is now widespread. Most large, incumbent financial institutions offer a robo. The independent startups tend to be more technologically nimble and user-friendly. For those investors who are wary of investing through a smaller and younger firm without a long-term track record, a more established institution can provide a stronger sense of security. However, many of the smaller players are backed by larger institutions.
Many robos invest clients in proprietary funds, which can raise questions over whether or not a robo is acting in the best interest of clients. This scenario is more common among larger players who operate primarily as investment managers and fund providers. When shopping around, look and see if a robo discloses what funds it will invest in. If they are proprietary funds, you can look elsewhere on their websites to find the fund prospectus, which will disclose fees and may have past performance records. A few smaller players do offer proprietary funds and have questionably traded consumers into them in the past. Our Robo Report and Robo Ranking can help you better understand what different providers charge.
It is important to do your research before picking a robo advisor. The key is to decide whether you are investing for general wealth building, retirement, future education expenses, or some combination of the three.
- What is the best balance between financial planning today and predicting future needs?
- What additional features might you need or benefit from?
- Do you want to take advantage of a unique investment strategy, such as SRI or active investing?
Carefully examine your financial situation and needs, and you will be on your way to choosing the robo advisor that is best for you. Do so sooner rather than later. Remember that the best time to invest for your long term financial success was yesterday.
|Portfolio||Account Minimum||Advisory Fee||Average Weighted Expense Ratio|
|Acorns||No minimum||$1/month for Acorns Invest ; $2/month for Invest + Acorns Later, $3/month for Acorns Invest + Acorns Later + Acorns Spend.For balances above $1 million, $100/month per $1 million in AUM||0.09%|
|Ally Financial||$100||0.30% annually; Also offer Cash-enhanced portfolio with 30% invested In cash and no management fee||0.07%|
|Axos Invest||No minimum||No fee for basic package; add-on packages, such as tax-loss harvesting, come at additional cost||0.09%|
|BBVA Compass||$10,000||0.75% annually||0.13%|
|Betterment||Digital: No minimum; Premium: $100,000||Digital: 0.25%;Premium: 0.40% (unlimited chat and calls with advisor), 0.30% above $2M||0.08%|
|Betterment Active||Digital: No minimum; Premium: $100,000||Digital: 0.25%, 0.15% above $2M;Premium: 0.40% (unlimited chat and calls with advisor), 0.10% discount on balance above $2M||0.19%|
|Betterment Income||Digital: No minimum; Premium: $100,000||Digital: 0.25%, 0.15% above $2M;Premium: 0.40% (unlimited chat and calls with advisor), 0.10% discount on balance above $2M||0.17%|
|Betterment SRI||Digital: No minimum; Premium: $100,000||Digital: 0.25%;Premium: 0.40% (unlimited chat and calls with advisor), 0.30% above $2M||0.13%|
|Citizens Bank||$2,000||0.50% annually||0.08%|
|E*Trade Active||$500||0.30% annually||0.09%|
|E*Trade SRI||$500||0.30% annually||0.13%|
|Edelman Financial Engines||$5,000||1.75% annually on accounts under $400,000. Lower at different tiers over $400,000||0.11%|
|Ellevest||Digital: No minimum; Premium: $50,000||Digital: 0.25%; Premium: 0.50% (access to live advisors and executive coaches)||0.07%|
|Ellevest SRI||Digital: No minimum; Premium: $50,000||Digital: 0.25%; Premium: 0.50% (access to live advisors and executive coaches)||0.17%|
|Fidelity Go||Digital Only: No Minimum; Personalized Planning & Advice: $25,000||Digital Only: 0.35%; Personalized Planning & Advice: 0.50%||0.00%|
|Fifth Third Bank||$5,000||0.50% annually||0.20%|
|Interactive Advisors||Interactive Advisor Portfolios: $5,000; Manager Portfolios: $10,000 – $120,000||Interactive Advisor Portfolios range from 0.08% to 0.30% annually; Manager Portfolios range from 0.25% to 1.5% annually||0.13%|
|JP Morgan Chase You Invest||$500||0.35% annually||0.0%|
|Liftoff (Ritholltz Wealth)||$5,000||0.40% annually||0.09%|
|M1 Finance||$100||No advisory fee||0.06%|
|Merrill Edge||Guided Investing: $5,000;Guided Investing with an Advisor: $20,000||Guided Investing: 0.45% annually (digital only); Guided Investing with an Advisor: 0.85% annually||0.07%|
|Merrill Edge SRI||Guided Investing: $5,000;Guided Investing with an Advisor: $20,000||Guided Investing: 0.45% annually (digital only); Guided Investing with an Advisor: 0.85% annually||0.27%|
|Morgan Stanley||$5,000||0.35% annually||0.08%|
|Morgan Stanley Active||$5,000||0.35% annually||0.37%|
|Morgan Stanley Defense and Cyber Security||$5,000||0.35% annually||0.43%|
|Morgan Stanley Emerging Consumer||$5,000||0.35% annually||0.46%|
|Morgan Stanley Gender Diversity||$5,000||0.35% annually||0.46%|
|Morgan Stanley Genomics||$5,000||0.35% annually||0.40%|
|Morgan Stanley Global Frontier||$5,000||0.35% annually||0.54%|
|Morgan Stanley Inflation Conscious||$5,000||0.35% annually||0.41%|
|Morgan Stanley Robotics||$5,000||0.35% annually||0.44%|
|Morgan Stanley SRI||$5,000||0.35% annually||0.49%|
|Motif||$1,000||0.25% annually for Motif Impact account||0.07%|
|Personal Capital||$100,000||0.89% annually for the first $1 million; lower at different tiers over $1 million||0.11%|
|Prudential||$5,000||0.79% annually for first $100K; lower at different tiers above $100K||0.09%|
|Qapital||$10||Complete: $6 per month; Master: $12 per month for additional non-investing features||0.14%|
|Schwab||Intelligent Portfolios: $5,000; Intelligent Portfolios Premium: $25,000||Intelligent Portfolios: No fee (digital only); Intelligent Portfolios Premium: $300 initial planning fee, $30/month subscription||0.21%|
|Schwab Domestic Focus||Intelligent Portfolios: $5,000; Intelligent Portfolios Premium: $25,000||Intelligent Portfolios: No fee (digital only); Intelligent Portfolios Premium: $300 initial planning fee, $30/month subscription||0.14%|
|SigFig||$2,000||No fee for the first $10k; 0.25% annually for balance over $10k||0.07%|
|SoFi||No minimum||No management fee||0.05%|
|TD Ameritrade||Essential Portfolios: $5,000, or $500 if you set up recurring deposits; Selective Portfolios: $25,000||Essential Portfolios: 0.30% annually;Selective Portfolios: tiered at a higher fee level depending on account balance and portfolio selected||0.06%|
|TD Ameritrade Income||Essential Portfolios: $5,000, or $500 if you set up recurring deposits; Selective Portfolios: $25,000||Essential Portfolios: 0.30% annually;Selective Portfolios: tiered at a higher fee level depending on account balance and portfolio selected||0.59%|
|TD Ameritrade Managed Risk||Essential Portfolios: $5,000, or $500 if you set up recurring deposits; Selective Portfolios: $25,000||Essential Portfolios: 0.30% annually;Selective Portfolios: tiered at a higher fee level depending on account balance and portfolio selected||1.29%|
|TD Ameritrade Opportunistic||0.17%|
|TD Ameritrade SRI||0.15%|
|TIAA Active||$5,000||0.30% annually||0.70%|
|TIAA SRI||$5,000||0.30% annually||0.34%|
|Titan Invest||$500||1% annually||0.00%|
|Twine (John Hancock)||$100||0.60% annually||0.08%|
|UBS Advice Advantage||$10,000||0.75% annually||0.08%|
|United Income||Premium: $10,000; Private Wealth: $300,000||Premium: 0.50% annually; Private Wealth (access to live advisors): 0.80% to 0.45% depending on account balances||0.18%|
|US Bank||$5,000||0.24% annually||0.15%|
|Vanguard||Vanguard Personal Advisor Services $50,000||Vanguard Personal Advisor Services 0.30% annually for the first $5 million; lower at different tiers over $5 million. annually||0.07%|
|Wealthfront PassivePlus||$500||0.25% annually||0.11%|
|Wealthsimple||Basic: No minimum; Black: $100,000||Basic: 0.50% fee on accounts less than $100k; Black: 0.40% on accounts greater than $100k||0.11%|
|Wealthsimple Halal||Basic: No minimum; Black: $100,000||Basic: 0.50% fee on accounts less than $100k; Black: 0.40% on accounts greater than $100k||0.00%|
|Wealthsimple SRI||Basic: No minimum; Black: $100,000||Basic: 0.50% fee on accounts less than $100k; Black: 0.40% on accounts greater than $100k||0.24%|
|Wells Fargo||$10,000||0.50% annually; discounted to 0.40% if subscribed to other specific Wells Fargo products||0.14%|
|Zacks Advantage||$25,000||0.70% on accounts less than $100K; 0.50% on accounts between $100K and $250K; 0.35% on accounts $250K and above||0.11%|