Best Robo-Advisors: Automated Investing for Returns

The investment management landscape is no longer a niche for the rich and the wealthy alone.

With robo-advisors making inroads, operations such as customized asset allocation, automatic rebalancing, tax-loss harvesting, etc. are available to everyone. Moreover, these services are available at rock-bottom management fees.

There are the old-hat brokers, such as Vanguard, Charles Schwab, Fidelity, E-trade, etc., as well as independent offerings like Betterment and Wealthfront, which have been ramping up their assets with over $9 billion and $5 billion dollars under their management, respectively. And there are many exciting new players allowing for socially responsible investing such as OpenInvest and Motif.

Thinking of being a part of this great momentum? Get to know the best advisors in the market. With a crowded market in this sphere, you can choose from options which:

  • Offer complete automation (robo-advisors in the true sense)
  • Offer hybrids that bundle computer algorithms with financial advisors

Let us first understand what a robo-advisor is in the first place.

How to choose the best robo-advisor for you?

We can help you out with this by giving you recommendations based on your answers to the following questions:

What kind of account do you plan to open?

  • Taxable account
  • Individual retirement account
  • I want an advisor for my 401(k) or employer plan

Best Robo-Advisors (2020)

Betterment Review

Personal Capital Review

OpenInvest Review

Wealthfront Review

Motif Review

Charles Schwab Review

Fidelity Go Review

M1 Review

SoFi Review

Robo-Advisor Management Fees

A minimal management fee is charged by robo-advisors as compared to online advisors. Robo-advisors charge fees as a percentage of your invested assets only. Hence, if it is 0.25% per year, then you are required to pay $25 on a $10,000 balance.

Note – Every dollar that is paid as a fee is a dollar that doesn’t give you a return on your investment.

Robo-advisor management fees online range from zero to 1%, though typically 0.25% to 0.50% is charged. Some robo-advisors, like Wealthfront and SigFig, manage your first $10,000 of assets for free. Moreover, robo-advisors don’t charge you exit fees. This makes it easier for you to change to a lower fee-charging advisor at any time.

Robo-Advisor Service offerings

If services are cheaper or free with some advisors then why don’t people only go to those advisors?

Simply put, there are many other services, terms, and conditions that offset these free services. Free services, in fact, are just one piece of the advisory puzzle. The main services that can give you better returns on your investment are what matters.

Standard services include:

  • Automatic rebalancing
  • Tax loss harvesting
  • Portfolio allocation as per your goals
  • Risk tolerance

Examples:

  • Wealthfront offers direct indexing on accounts of $100,000 or more, which provides bigger tax savings if you invest in individual securities.
  • Acorns link your credit and debit cards to round up your purchases, investing the change into a robo-advisor managed portfolio.
  • Betterment has a behavioral finance focus, with lots of goal-based tools designed to motivate you to save more.

Robo-Advisors vs. Human Financial Advice

The other type of service offered is a combination of computer algorithms and real live humans. This could either be in the form of a rotating cast of financial advisors that change at time intervals or client-dedicated advisors, the latter being more expensive than the former.

Human advisors are offered for your service in the following companies:

  • Personal Capital
  • Vanguard Personal Advisor Services
  • Charles Schwab Intelligent Advisory
  • Betterment

The hybrid services option comes to you at a premium. For example, Personal Capital charges 0.89% and offers clients with $200,000 or more, dedicated financial advisors. Other clients get access to a team.

You should be cautious when choosing an advisor and check their credentials (some are registered investment advisors, while some are full-fledged certified financial planners). Also, be sure to find out if there is limited or unlimited access to services.

Robo-Advisor Investment Options

Performance related judgments cannot be made at this juncture because the market is a bull market. One advisor outperforming over another is due mostly to the asset classes rather than a long-term success record.

There are ways by which you can better judge the investment options offered by the advisor.

Example: Proprietary funds of Vanguard, Charles Schwab or Fidelity, make use of these funds for robo-advisor portfolios.

The goal should be to keep the expense ratio as low as possible.

Exchange-traded funds are the most common type of investment made by most robo-advisors, as these give an expense ratio generally under 0.20%. While evaluating online advisors, you will need to:

  • Sum up the management fees plus average expense ratios to get a real picture of the total cost
  • Analyze the number of asset classes included in the portfolios

This information is available on the website during sign-up or when you call the advisor directly.

If not ETF’s (exchange traded funds), you can also look out for customized services with these online advisors.

Robo-Advisor Account Minimums

Account minimums vary with different online advisors, ranging from $0 up to $100,000. A fresh starter would always seek out low minimums, while a dedicated/personalized services advisor requires a much higher minimum initial account investment.

Types of Investment Accounts Managed

A guaranteed return on your investment: If you have 401(k)’s that offer matching dollars, prioritize those accounts first. Bloom is an exception that specifically deals in 401(k)s, while others cater to IRAs and taxable accounts.

Once you have made the match, open up an IRA with an online advisor. Taxable accounts at robo-advisors should be used if you’ve maxed out your 401(k) and IRA contributions, or for longer-term savings goals such as a down payment on a home.

Some offerings from advisors include niche accounts, like business accounts or solo 401(k)s. TD Ameritrade Essential Portfolios and Ally Invest Advisors both stand out in this area.

Looking For the Best Advisors?

Check out the analysis on the best robo-advisors, which breaks down the key differences among these services and offers recommendations on the best advisors by category.