– Robo-Advisor –
The best Robo-advisors offer easy account setup, robust goal planning, account services, portfolio management, and security features, attentive customer service, comprehensive education, and low fees.
Robo-advisor, sometimes also known as automated online advisors or Robo investing services, are technology-based investment platforms that offer fully automated online investing.
These financial technologies (fintech) firms are springing up quickly and target mostly new and younger investors (such as Millennials).
But which one is the best choice for your investment preferences and risk? What features do Robo advisors have in common, and how do they compare to each other?
What is a Robo-Advisor?
There are many definitions of what exactly “Robo advisor” means. To put it simply, a Robo advisor is a method to automate the asset allocation of investments via a computer algorithm.
In a broader sense, a Robo advisor may also include human, financial advisors, but only for services that require human assistance (e.g., taxes, retirement, or estate planning).
How Does Robo-Advisor Work?
Each Robot advisor is different. It grows and learns from its user’s preference and the data fed to it. Robo advisors that are used for financial security investment differ from forex trading platforms.
They’re usually accessed through the platform provider’s website or web app.
When you set up an account with a Robo advisor, you’ll need to answer some questions about your investment goals, risk tolerance, and securities that interest you.
You may be asked questions about whether you’re investing in building wealth, saving for retirement, buying a property, or other goals.
Once you’ve answered the questions, the program suggests an investment portfolio that coincides with your goals and investment preferences. The portfolio usually comprises a combination of publicly traded stock, mutual funds, ETFs, and bonds.
The Robot advisor makes forecasts about the expected movements of securities, and you can use the projections to set buy or sell orders.
Some platforms allow automatic monitoring, buying, and selling that can be used if you cannot actively monitor the accounts.
The broker charges a fee for the use of their Robo advisor platform, and this fee is often separate from the commission paid to brokers for trading.
What Does a Robo-Adviser Cost?
While the costs vary from service-to-service, typically the cost of a Robo-adviser has two major components:
- Management fee: This fee typically costs 0.25 percent to 0.5 percent of your assets on an annual basis, though fees may be lower or higher. So every $10,000 invested would incur management fees of $25 to $50.
- Funds’ expense ratios: The Robo-adviser will invest your money in various funds that also charge fees based on your assets. The fees can vary widely but range from 0.05 percent to 0.65 percent, costing $5 to $65 annually for every $10,000 invested, though some funds may cost more. These fees will be deducted proportionally on a daily basis by the fund company, and they will be almost invisible to you.
While sometimes the Robo-adviser charges a few incidental fees when you require something special, in general, you won’t run up any extra charges.
So it doesn’t cost you anything extra to buy and sell funds, move money out of your account or change your allocation if your risk tolerance changes.
Here are the Top Robo-Advisor
- Management fee: 0.25 percent
- Account minimum: $500
Wealthfront also provides tax-loss harvesting, and the fees on its ETFs are among the lowest in the industry.
Even more, the firm provides attractive interest rates on its FDIC-insured cash management account and doesn’t charge management fees for it, either.
- Management fee: 0.25 percent – 0.4 percent, depending on service level
- Account minimum: $0
As one of the top players in the industry, Betterment sets the standard for service. It offers automatic rebalancing, tax-loss harvesting, a personalized retirement plan as well as the opportunity to buy fractional shares in funds.
So that all your money is invested rather than having to wait until you have enough funds to buy a full share. You can sync outside accounts, too, and receive advice on them, while customer support is available seven days a week.
However, Betterment’s premium plan ups the game with access to a human adviser.
- Management fee: 0.25 percent–0.5 percent, depending on service level
- Account minimum: $0, for the basic service level
While Ellevest targets women specifically, its financial planning incorporates the needs of everyone. Ellevest is great for goal-based investing, even if you have multiple goals.
The basic service level offers automatic rebalancing and tax minimization. The premium account ups the ante with one-on-one access to certified financial planners and executive coaches.
Charles Schwab Intelligent Portfolios
- Management fee: none
- Account minimum: $5,000
With its Intelligent Portfolio Robo-advisory, Charles Schwab is going hard after the Robo-adviser market. It is well-known for its investor-friendly practices.
Schwab brings this same spirit to robos, with no-cost features. This includes rebalancing, automatic tax-loss harvesting, and 24/7 access to U.S.-based customer service.
- Management fee: none
- Account minimum: $1
SoFi has expanded into the realm of Robo-advisers with an incredibly investor-friendly service. The company provides automatic rebalancing and goal-based planning to help you reach your life objectives.
Even more, you’ll get career services, access to financial advisers, and discounts on other SoFi products for no extra cost.
Is Robo-Advisor Investing Right for You?
The answer to this question depends on your net worth. Also, the complexity of your investments, and whether you feel comfortable enough doing it yourself.
I’m not in the camp of those who say that these Robo advisors add no value. However, you could easily replicate their results yourself just by using Fidelity or Vanguard funds.
The biggest advantage of opening a Robo-adviser account is having an experienced company manage your money at a reasonable fee.
But once the account is open, you’re just getting started. You’ll want to continue investing money over time to increase your savings.
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