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Robo-advisors

This isn’t Arnold Schwarzenegger terminating your advisor or your portfolio. These tools can help you save a bunch of money in management fees and are competitive with the market. Here’s our run-down.

What are robo-advisors

Robo-advisors are essentially algorithms designed to allocate your investments in accordance with particular risk/reward parameters, which are usually set up at signup. Because there is a high degree of automation, they are able to charge less than traditional human advisors. Some robo-advising sites supplement their services with human advisors. Overall, there are finite points that distinguish each of the leading companies, and each investor should consider his/her own needs and risk tolerance.

What are the fee differences?

Robo-advisors tend to be less expensive than human advisors. Depending on the capital invested, they could be free or charge as much as 1%. The industry tends to say that they charge approximately 0.33% (33 bps) [“bps”—pronounced “bips”—stands for “basis points.” One basis point equals 1/100 of 1%, i.e., 0.01%. So 33 bps equals 1/3 of 1%.], whereas human advisors often charge more than 1% (i.e. often more than 3x times what a robo-advisor charges). Given how this factors into compounding, the difference in returns earned over the course of one’s life could be substantial. 

Can I trust a computer?

This is a great question. Robo-advisors have been back-tested and have encountered a few stress points in the market. They have not gone through a full market cycle, so no one can definitively say how they will perform. Many robo-advisors do have human advisors overseeing the trading to ensure that a black swan event doesn’t tank everyone’s investment.

Who are the players?

Betterment: Since it is one of the largest robo-advisors, many flock to this platform. There’s no minimum balance, and they provide tax-loss harvesting (basically making sure your trade losses work for you when Uncle Sam comes to collect the bill). You get exposure to ETFs in equities and bonds. They can also assist with your retirement plans (IRAs, trusts, etc.).

Wealthfront: Wealthfront allows additional diversification in hard commodities, the service is free up to $10K in investments, and they do direct indexing (for accounts over $100k). They also accommodate 529 savings plans, and, like Betterment, they provide tax-loss harvesting. While they do have an account minimum ($500), their fees could be lower than Betterment’s depending on how much capital you place with them.

Personal Capital: This one isn’t exactly robo, but it’s close. There’s a bunch of free stuff that they offer to get you on track. They also have heart-beating, lung-breathing humans whom you can talk to, although, this makes the service a bit more costly than others (though still less than the cost of traditional wealth advisors). Also delving into modern portfolio theory, they will help you allocate your capital.

Schwab Intelligent Portfolios: So although they are a traditional advisor, they initiated a pricing war with a “zero fee” promise. They do get fees from trading their own products (and other third-party arrangements), but still, you’re saving a bunch…assuming you have the $5k to put up. They have all types of investment and retirement accounts.

SigFig: SigFig is taking the market by storm (they are big in the B2B space), but may also integrate with your existing investment platform (such as TD Ameritrade/Scottrade, Charles Schwab or Fidelity) to automate the management of your portfolio.

Wealthsimple: Wealthsimple is one of the newer kids on the blocks in the U.S., but they have been operating in our neighbor to the North since 2014. They have a $0 minimum investment, the first $5,000 placed with them is fee-free, and thereafter the fees become 0.5%. A few things set them apart. The first is that they offer a human touch without meeting a minimum investment threshold. Also, their “Portfolio Review” service will provide experts to not only help you with your Wealthsimple account but also evaluate your other holdings. Wealthsimple also provides socially-responsible options such as portfolios that look to emphasize companies with low carbon footprints—as in cleantech—as well as commitments to diversity.

Motif: Motif offers an interesting ability to invest in thematic portfolios. This includes many ESG (Environmental, Social and Governance) options, as shown in their impact portfolios. For a relatively low cost, one can invest both retirement and non-retirement money. Motif provides a plethora of mobile tools to make investing in a basket of investment options easy. Motif is also suited for both professional and individual investors.

blooom: blooom focuses on helping individual investors better manage their retirement savings. After you provide your login information, this solution will optimize your investments, including in accordance with your age and retirement goals. Their investment approach understands that many people do not know how to allocate assets (and they remind you that “Your company is NOT managing your 401k. You are.”). Best of all, this review is free!

WiseBanyan: Established as one of the first free financial advisors, the company states that investing is “a right not a privilege.” They believe that investing should begin as early as possible, and with their proprietary technology, they are able to advise clients for no fee. WiseBanyan maintains an in-house list of stocks and bonds that can be custom tailored based on each client’s needs, retirement expectations, and risk-reward profile. Clients can open or roll over most retirement accounts.

Acorns: Acorns rounds up purchases to the nearest $1 made by cards that you grant access to, such as some or all debit and credit cards, and invests the rounded-up balance (in $5 increments). After you answer some questions about goals and feelings about risk, Acorns will recommend a portfolio choice (although you can select any), such as Conservative through Aggressive ETF portfolios. Through their Found Money solution, select vendors (such as Apple, Blue Apron, Macy’s and WalMart) will add a percentage of your purchase into your account on top of your round up.

Hedgeable: Hedgeable spans the investment knowledge spectrum. It covers the needs of retail investments and savings, institutional, and high-net-worth. Currently, they offer over 25 different profiles that can meet an array of investment styles. These can include downside protection as well as socially responsible and alternative investments. Their ability to also manage assets such as hedge funds sets them apart from many investment services (although these are charged at a premium).

Ellevest: Ellevest prides itself on adjusting its investment schedule to maximize earnings for women. For instance, many women’s earnings peak earlier than men’s, and some women may have varying pay trajectories or non-linear career progression. Ellevest specifically looks at how these issues impact earnings and adjusts risk/reward allocations accordingly. Click here for a look at their pricing schedule.

Traditional Players Go Robo

Some of the traditional players in the investing space have also joined the robo-game (or offer advice digitally). These include:

  • FidelityGo
  • Merrill Edge Guided Investing
  • TD Ameritrade Essential Portfolios
  • E-Trade Adaptive Portfolio / E-Trade Core Portfolios
  • T. Rowe Price ActivePlus Portfolios
  • Vanguard Personal Advisor Services
  • Ally Invest Managed Portfolios
  • Morgan Stanley Access Investing
  • BlackRock’s FutureAdvisor

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The information, data, and materials (“Information”) presented on the Otterwize website are for general informational and educational purposes only. The Information is not intended to be viewed as and does not constitute investment advice, financial advice, legal advice, tax advice, accounting advice, or any other professional advice. [Read More...]

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  • Saving
    ▼
    • Saving 101
    • Liv’n, Mov’n & Nosh’n
    • Saving Apps
    • Budgeting & Net Worth
    • Checking & Savings
    • Money Markets & CDs
    • Saving Blotter
  • Credit & Debt
    ▼
    • Credit 101
    • Give Yo’self Credit
    • Paying Off Debt
    • Mortgages
    • Personal Loans
    • Auto Loans
    • Credit & Debt Blotter
  • Investing
    ▼
    • Investing 101
    • Retirement Accounts
    • Robo-advisors
    • Advisor Look-Up
    • Opportunity Cost: Invest The Difference
    • The New 99%
    • Investing Blotter
  • Adulting
    ▼
    • Adulting 101
    • Managing Your Career
    • Housing
    • Buying or Leasing a Car
    • Insurance
    • Taxes
    • Simmering Savings
    • Adulting Blotter
  • The New Economy
    ▼
    • New Economy 101
    • The Sharing Economy
    • Side Hustles
    • Starting a Startup
    • The New Economy Blotter
  • Otter Tools
    ▼
    • Personal Finance in 9 Words
    • Roadmap to Financial Independence
    • 10 Personal Finance Rules of Thumb
    • 10-Step Financial Fitness Workout
    • Top Ten’ers