How To Pick The Best Robo-Advisor

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Famed investor Warren Buffett has frequently advocated that most investors should not strive to beat the market but instead should select an index fund, ignore the day-to-day fluctuations of the market and over the long-term they will likely enjoy better portfolio returns than those generated by actively managed funds.

The reason he advises in favor of this investment method is that few investment managers can beat the market over the long-term. One way to follow his guidance is to manage your nest-egg in a brokerage account. Another option if you don’t wish to be so hands-on is to select a robo-advisor, who can automatically invest your portfolio on your behalf, but how do you pick the best robo-advisor for you?

Compare Robo-Advisor Fees

Robo-advisors charge lower fees on average than traditional financial advisors. Among the most competitive robo-advisors on fees are WiseBanyan and Schwab Intelligent Portfolios who charge no management fees for basic automated investment management service offerings.

Robo-advisors are virtually synonymous with low-fee automated portfolio management. Compared to a traditional financial advisor, who will charge a fee on managed assets of over 1% on average, management fees charged by robo-advisors are generally a lot lower.

WiseBanyan has set the standard for low fees by charging no management fees for its basic service. It will however charge fees for additional services, such as tax-loss harvesting.

Schwab has a robo-advisor service called Schwab Intelligent Portfolios that also offers a compelling zero-management fee structure. Schwab is unusual among robo-advisors in its capability to offer a no-fee portfolio management service because it makes money from the expense ratios of its funds which make up client portfolios.

After Schwab Intelligent Portfolios, which has over $10 billion in managed assets, Betterment has accumulated the next largest amount of assets and charges just 0.25% for its basic service, Betterment Digital. Higher tier service levels at Betterment which provides access to human advice for 0.40%.

BETTERMENT SPOTLIGHT
betterment

InvestorMint Rating

5 out of 5 stars

  • Promo: Up to 1 Year Free Management
  • Management Fee: 0.25% – 0.40%
  • Account Minimum (Betterment Digital): $0
  • Account Minimum (Betterment Premium): $100,000

via Betterment secure site

Like Betterment, Wealthfront and SoFi, a more recent robo-advisor entrant, both charge 0.25% in management fees. Wealthfront was founded by Andy Rachleff and he and his team have ensured that the investment management service provided by Wealthfront remains aligned with the original idea of pure automation while SoFi is a hybrid service that combines technology-powered investment management with client access to live advisors.

At the higher end of the fee spectrum is Personal Capital, which charges management fees of anywhere between 0.49% and 0.89% depending on the amount of assets invested. Personal Capital charges the higher fee level because every client is assigned to a dedicated financial advisor, so it’s more of a white-glove robo-advisor service.

Compare Automated Vs. Hybrid Robo-Advisors

Investors who want the best of both worlds: advanced technology and human connectivity can select among hybrid robo-advisors who provide access to human financial advisors along with automated portfolio management.

Beyond fees, robo-advisors compete on value-added services, such as automatic rebalancing, tax-loss harvesting, and connecting clients to live financial advisors.

Hybrid robo-advisors will connect clients to either dedicated financial advisors or teams of live advisors in addition to providing automated investment management services. Investors who want a more personal touch or the option to speak with a financial expert should consider Betterment, Personal Capital, SoFi and Vanguard Personal Advisory Services, all of whom provide access to human financial experts.

Vanguard, Personal Capital and Betterment (Plus and Premium) have high account balance minimums compared to SoFi.

Robo-Advisor Account Balance Minimum
Vanguard $50,000
Personal Capital $100,000
Betterment Premium $100,000
SoFi $0

SOFI SPOTLIGHT
sofi brokerage trading system investing

InvestorMint Rating

5 out of 5 stars

  • Management Fees: 0.25% of assets invested
  • Account Balance Minimum: $500

Compare Investment Methods

Investors looking to protect principal during downturns as opposed to remaining fully invested should consider Hedgeable, a robo-advisor that looks to mitigate risk during market corrections.

Most robo-advisors leverage nobel-prize winning academic research called Modern Portfolio Theory to create balanced portfolios. This research is based on the idea that risk-averse investors can build portfolios to maximize expected returns for a given level of risk. The idea is that the risk of holding a diversified portfolio will be lower than that of a concentrated portfolio.

By applying Modern Portfolio Theory, an investor with a portfolio that includes multiple asset classes, such as fixed income, equities, and commodities, will be exposed to less risk than an investor holding a portfolio of stocks alone.

Not every robo-advisor embraces Modern Portfolio Theory exclusively in its investment methodology. Hedgeable looks to go a step further to better protect clients during market downturns via a feature it calls Downside Risk Protection. The idea is to overlay each account with proprietary risk management to help minimize large losses that can hurt portfolio growth.

An added benefit Hedgeable offers clients is access to invest in bitcoin, start-ups and make socially responsible investments to gain exposure to categories, such as Low Carbon Emissions and Alternative Energy.

HEDGEABLE SPOTLIGHT
hedgeable logo

InvestorMint Rating

4.5 out of 5 stars

  • Management Fee: 0.30%-0.75%
  • Account Minimum: $0

Compare Account Types

Investors with straightforward financial situations will be well served by most robo-advisor firms while those with more complex financial circumstances will be best served by established robo-advisors, such as Betterment and Personal Capital, who cater to a broad range of account types.

Most robo-advisors offer a broad range of account types, catering to taxable and retirement accounts. Virtually all offer individual taxable and IRA accounts but few cater to 529 Plans – though some, like Vanguard, will advise on 529 Plans even when they won’t manage them.

Investors with complex financial circumstances who need multiple accounts, such as IRA, taxable, and Trust accounts will find established robo-advisors, such as Betterment and Personal Capital, offer a broad range of account types.

Clients who want their 401(k) analyzed and managed should start their search at Blooom, which specializes in 401(k) management.

BLOOOM SPOTLIGHT
blooom logo

InvestorMint Rating

4 out of 5 stars

  • Management Fee: $10 monthly
  • Account Minimum: $0

via Blooom secure site

When you are choosing between opening a taxable or retirement account, consider first maxing out your contributions to retirement accounts, such as your 401(k) or IRA, with pre-tax dollars and thereafter contributing after-tax dollars in a Roth IRA or taxable account.

Compare Investment Costs

At a quick glance, Fidelity Go seems like it has higher fees than some other robo-advisors but upon closer examination its overall fees quoted include the cost of investment expenses, a charge usually passed on to clients.

When comparing financial advisors, most investors focus on management fees first. But beneath the service is another fee worthy of serious consideration, the expense ratio. Most traditional financial advisors and robo-advisors pass along the expense ratio cost to clients. These costs are charged at the fund level and are not broken out as a separate charge to clients, so they can easily be missed.

While most robo-advisors pass along the cost of investment expenses, one robo-advisor stands out by including these in the overall fee quoted: Fidelity Go. The management fee Fidelity Go charges is 0.35% on retirement accounts, including investment expenses. For taxable accounts, the fee inclusive of investment expenses is 0.45% of managed assets.

FIDELITY GO
fidelity go

InvestorMint Rating

4 out of 5 stars

  • Management Fee (retirement portfolios): 0.35% (including Investment expenses)
  • Management Fee (taxable accounts): 0.45% (including Investment expenses)
  • Account Minimum: $5,000

via Fidelity secure site

Other robo-advisors look to keep these fees as low as possible by investing in passively managed exchange-traded funds versus mutual funds, which are actively managed. Small differences in expense ratios of just 0.5% annually can translate to hundreds of thousands of dollars of opportunity cost over a 30 year time horizon, so it’s well worth paying close attention to these underlying costs.

Compare Account Balance Minimums

Account balance minimums range from $0 to $100,000 at robo-advisors, and generally vary based on the level of service offered from automated to dedicated financial advisors.

The minimum account balance required to open an account varies from $0 to as high as $100,000 depending on which robo-advisor you choose and the level of service you choose.

Fully automated portfolio management services from Betterment, WiseBanyan and Schwab have no minimum account balance requirements. At the higher end of the spectrum, Personal Capital requires at least $100,000 to open an account and Rebalance IRA stipulates a $100,000 minimum.

Robo-Advisor Account Minimum Open Account
charles schwabREVIEW

$0
wisebanyan logoREVIEW

$0
bettermentREVIEW

$0
acorns investing robo advisor logoREVIEW

$5
wealthfront brokerage trading system robo advisorREVIEW

$500
sofi brokerage trading system investingREVIEW

$500
fidelity goREVIEW

$5,000
future advisor logoREVIEW

$10,000
personal capitalREVIEW

$100,000
vanguard investmentsREVIEW

$50,000
rebalance ira logoREVIEW

$100,000

bettermentBetterment Premium
REVIEW

$100,000

Choose The Right Robo-Advisor For You

Select the robo-advisor that best meets your needs based on the criteria that are most important to you, whether fees, selection of account types, investment costs, access to experts or account balance minimums.

Some robo-advisors, such as WiseBanyan, compete heavily on fees while others, such as Personal Capital, focus on a white-glove service with dedicated financial advisors. Depending on how much capital you may have available, account balance minimums may exclude certain robo-advisors from consideration.

Regardless of which robo-advisor you select, ask them some additional questions for peace of mind, such as where your money will be held and with which custodian as well as who has discretionary authority over your account.

After comparing different robo-advisors against the factors that are most important to you, you will have greater peace of mind that your hard-earned nest-egg is in the right hands to meet your investment goals.

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