Robo-advisors have become popular in recent years by offering a compelling value proposition when compared to traditional financial advisors. Most traditional financial advisors charge advisory fees of over 1% for managing assets. But what most clients don’t realize is those advisory fees are just one of the many fees they pay. Mutual funds and exchange-traded funds, which feature in many client portfolios, also charge fees. Plus, many advisors pass on brokerage fees to clients when transactions are made to buy and sell.
When clients add up advisory fees, fees charged by mutual funds, brokerage fees and any other fees, such as hourly consulting fees, the total frequently exceeds 1.5% of assets managed each year. Over time, this high fee hinders account growth. And that’s where robo-advisors can add value, by delivering a similar service at much lower cost.
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Which Robo-Advisors Charge No Fees?
Schwab Intelligent Portfolios and WiseBanyan have pioneered a no-management fee model. Schwab provides account management free but primarily selects its own proprietary Schwab funds for client portfolios and makes money from their expense ratios. WiseBanyan is truly free with no account management, custodial, trading or hidden fees but add-on optional services, such as tax-loss harvesting, are premium services which do incur charges.
Schwab is the runaway leader among robo-advisors when it comes to assets under management; they were the first robo-advisor to manage over $10 billion. Users flocked to Schwab because it figured out how to offer portfolio management without charging account management fees. Instead, Schwab selects its own proprietary Schwab funds for client portfolios and makes money from their expense ratios, which range from 0.08% to 0.24%.
WiseBanyan claims to be “the world’s first free financial advisor” and delivers on its claim by charging no management fees, no custodial fees, no trading fees and no hidden fees for its basic, automated portfolio management service. Clients are billed up to 0.25% of assets under management, capped at $20 monthly, for optional products and services, such as tax-loss harvesting.
Which Robo-Advisors Have Low Fees?
In addition to having low-fee services, Wealthfront offers automated tax-loss harvesting which it claims can boost annual returns by as much as 2%. Betterment also has a low-fee service plus offers access to human advice.
Wealthfront offers free account management up to $10,000 and charges a management fee of 0.25% thereafter. Wealthfront has a slightly low account balance minimum of just $500 though Betterment eclipses it by allowing clients sign up without imposing an account minimum.
In addition to low fees, Wealthfront shines when it comes to tax-loss harvesting. This free service automatically seeks to create more tax-efficient portfolios, which enhance returns by as much as 2% annually according to Wealthfront. Wealthfront creates tax-optimized portfolios using a method called Direct Indexing on accounts over $100,000 by purchasing up to 1,001 individual securities and taking advantage of individual tax-loss harvesting opportunities.
Beyond low fees, Betterment distinguishes itself from other robo-advisors with an overall suite that is hard to match: tax loss harvesting, access to human advice, tax-coordinated portfolios, retirement calculators and more.
Best Robo-Advisors For Fee Transparency
Management fees are just one of the fees incurred by clients of portfolio management companies. The funds which make up your portfolio also have fees which are called investment expenses. These fees need to be added to management fees to arrive at the total fees charged, assuming custodial and brokerage or transaction fees are negligible.
Fidelity Go offers a more attractive fee schedule than meets the eye at first glance. While most casual observers will compare Fidelity Go’s fee of 0.35% for retirement accounts and 0.45% for taxable accounts with what appears to be lower fees at other robo-advisors, the eagle-eyed observer will spot that Fidelity Go includes investment expenses in its overall % figure. So while other robo-advisors may quote a management fee of 0.25%, the total fees clients pay may be quite a bit higher when investment expenses are included, making Fidelity Go better value overall.
Vanguard Personal Advisor Services is almost as hard to beat on overall fees as Fidelity Go. Vanguard charges just 0.30% but only investors with at least $50,000 can sign up to Vanguard’s robo-advisory service. What makes Vanguard even more attractive is that it connects clients with more than $500,000 to live financial advisors too.
Robo-Advisors With Add-On Fees
Some robo-advisors have added fees in addition to the service fees charged for portfolio management.
A few robo-advisors charge additional service fees in addition to portfolio management fees. Among robo-advisors, FutureAdvisor has one of the higher fee schedules of 0.50% annually. In addition to those fees, FutureAdvisor passes on transaction fees of between $7.95 – $24 per trade to clients. Most funds used in its portfolios are commission-free but those that aren’t are pricey to enter and exit.
Rebalance IRA has perhaps the highest account balance hurdle of all robo-advisors. To open an account requires a minimum $100,000. Once or twice a year Rebalance IRA rebalances client portfolios and trade fees, which can range from $50 to $70, to enter and exit positions are passed on to clients.
Robo-Advisors Fee Comparison By Account Balance