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How to Find the Best Robo Advisors Help You Make More Money


Why Do We Prepare “How to Find the Best Robo Advisors: Help You Make More Money”?

How to find the best robo advisors may not be easy to answer. Robo advisors are becoming very popular among investors. These are automatic and low-cost investment opportunities. Within moments, robo-advisors help you set-up a diverse, customized portfolio. You can get access to fund management services like a certified financial planner etc. Such services were earlier reserved for the super-rich. For these reasons, robo-advisors are getting the attention of people. In fact, AT Kearney claims that assets managed by robo-advisors are likely to grow by 68% p.a. They’ll become nearly $2.2 trillion in coming five years.

There’s an increasing choice of robo-advisors as new companies enter the industry. Veteran robo-advisors are also increasing their offerings. So how do you choose from the options to get the best robo-advisor? To be honest, the ideal robo-advisor varies from investor to investor. It depends on their financial needs and situations. But, the high-rated robo-advisors have some common traits. For this list, robo-advisors got highest points for solid portfolio management, minimum account balance, and low fees.

We hope this article can help you to make money, get rich and become a millionaire!

What Is Robo Advisor?

Financial advisors could be costly. Though an average yearly fee of 1%-2% isn’t much, it adds up. E.g., the stock market generates a return of 6.5% after inflation. In this case, a 1-2% fee makes up for 15-30% of the overall return. For people who hardly meet their financial advisors, and have significant portfolios, the total cost can be appalling. People who meet their advisors once, the cost can sum up to $10,000-50,000/hour.

Usually, financial planners don’t help the client outguess the market also. Studies have shown that active investing is unable to beat passive investing. Especially after considering the fees.

Due to high fees and weak performance, many fintech firms created the robo-advisors. It’s a sophisticated algorithm which does the majority of the things financial planners do. But for a very less price. At its center, robo-advisors help build, manage, adjust and improve a portfolio. For a person, who’ll retire after 20 years, the robo-advisor may suggest riskier assets like stocks. But, for a person about to retire in a few years, it may recommend conservative options like bonds.

Why Do We Need Robo Advisors?

  1. Variety of Services – Robo-advisors help in determining the amount to invest. This is in tune with the financial goals and risk tolerance of the clients. Besides this, robo-advisors also help automate tax-loss harvesting, asset optimization and rebalance the portfolio. Some even help people develop retirement plans and manage their 401ks. Plus, robo-advisors like Betterment automatically re-balance the portfolio without any commission fee.
  2. Negligible Minimums – This is one of the most significant merits of Robo advisors. They’ve low account minimums than financial planners who ask for an investment of at least $100,000. Some robo-advisors have $0 account minimums. This way, portfolio balance and retirement planning advice became affordable to masses.
  3. Low Fees – Robo advisors charge 0.25%-0.5% of the portfolio. Financial advisors charge 1-2%. Though this 1-2% may not seem much at the first look. But, it adds up in the long run. The users of robo-advisors get a higher share of investment profits. This amount may also be thousands of dollars for many people. The robo-advisors’ fees don’t always include mutual funds fee and ETF.
  4. Little or No Conflict of Interest – Usually the financial advisors’ interest differs from their clients’ interest. A financial planner may earn more if he drives his customer toward high-fee products. These products may not suit client’s goals. As robo-advisors use algorithms, they look for the least costly solution to fit client needs. Hence, there is a small conflict of interest.
  5. High Availability – As robo-advisors are software, they’re always available until the time client has internet access. It’s difficult to access a financial advisor anytime you want. This is because you need to take an appointment to fix a meeting. Financial advisors are very busy people.
  6. Tax-Loss Harvesting – Clients also get an advanced feature of tax-loss harvesting with robo-advisors. This is the practice of a divesting a loss-making security, i.e., harvesting. It helps offset profit somewhere else in a portfolio. You can then replace this divested security with similar security. Thus, you can maintain an optimal asset allocation by portfolio diversification. The losses on divestment can also decrease the taxable income of the investor by almost $3,000.
  7. Hybrid Robo Advisors – For some, robo-advisors are not enough. They need more practical human touch. To resolve this issue, many companies provide hybrid robo-advisors. Such robo-advisors have an extra functionality of speaking with human advisors on the phone. These financial advisors can help investors with complex matters which robo-advisors are unable to do currently.

How Do We Find the Best Robo Advisors for You?

We did a ranking of robo-advisors on several criteria. Our experts reviewed over 30 different firms. They spent nearly 100 hours in data crunching and speaking with other experts. Below are the rules we used to find out the best:

  1. Best All-Round Quality – Some companies surpassed others in every category
  2. Account Limits – The lower, the merrier
  3. Fees – We prefer little or no fees
  4. Assets Under Management – The higher AUM, the higher is the company’s stability and the more you can trust it.
  5. Features – The more features it has like tax loss harvesting, direct indexing, etc., the better
  6. Customer Service – Support is critical when it concerns investments

Best Robo Advisors Help You Make More Money

Best Robo Advisor 1: Betterment

Betterment LLC is among the robo-advisor giants. With $10 billion in assets under management (AUM), it is by far the principal robo-advisor. In July 2016, it crossed the $5bn AUM mark and became the first robo-advisor to do so. Betterment has a passive investment approach. It trades via the Apex Cleaning Corporation, like its arch-rival Wealthfront.

So why many investors prefer Betterment? The service is especially attractive to new investors. It has zero account minimum for its standard or digital plan. The company also provides excellent portfolio management services via its Plus and Platinum Plans. Betterment uses automatic tax-loss harvesting. It promotes that “You can keep an extra 2.9% of your returns every year by using Betterment”. This is because of company’s passive investment approach and rebalancing techniques.

Betterment provides a blend of bond index funds and low-fee stocks. The company will give you a diverse, customized portfolio after knowing your risk tolerance.

It charges .25% yearly fee for the digital plan. This plan entails access to customer service, automatic portfolio management, and all its other tools. The digital tier also provides access to on-call consultation every year. If a client has more than $2mn with Betterment, he’ll not pay any fee for the sum over $2mn.The premium plans are on the pricier side. They also have minimum account limits. But clients get unlimited calls from Betterment’s expert team. The account minimum for the premium plan is $100,000. Plus, the yearly fee for this plan is .40%. Betterment doesn’t charge any extra transaction fee. But, there’s a low expense ratio fee which every company charges. The ETF management fee falls in the range of .09% to .17%. The premium plan is suitable for people having a complicated financial situation. They can discuss their strategies with a financial planner rather than texting.

Besides calls with financial planners, Betterment also gives retirement planning facility. There are many account types even like 401(k), IRA and trust accounts, which the company offers. (For the company’s fee structure, please click here).

Best Robo Advisor 2: Personal Capital

Personal Capital is a digital financial platform. It provides a series of free wealth management tools, besides access to a financial advisor. The company has $5bn in AUM as on October 2017. Their robo-advisor enables clients to link their bank accounts with the platform. Through this, clients can track their retirement savings and expenditure, besides their portfolio’s performance. The robo-advisor adopts the modern portfolio theory investment approach. It uses this approach to identify the optimal asset class combination of your portfolio. Under this, the portfolios carry a weighted income-expense average of around .09%. The company also uses rebalancing and tax-loss harvesting.

Its fee is higher than other companies included in the list. The fee ranges from .49-.89% yearly. Most investors do pay even the highest fee, i.e., .89%. The more you invest, the lower is the fee. While Personal Capital’s fees are relatively high, it earns points for its variety of wealth management tools. Its dedicated team of experts and financial planners are also a plus point. Personal Capital provides three different accounts. Its ‘investment service’ is for people who hold up to $200,000 in investable assets. The other two are premium service account. One is ‘Wealth Management’ for people with $200,000-$1,000,000. The second one is ‘Private Client’ for people having over $1,000,000 in investable assets. Clients get access to a human financial planner with all plans. But, the premium plan offers access to dedicated financial planners plus extra fund management features. These include tax-loss harvesting and a range of other services such as tax planning services and estate.

Best Robo Advisor 3: Schwab Intelligent Portfolios

Schwab Intelligent Portfolios offers a “zero fee” scheme. This feature attracts many people. Schwab doesn’t charge any account fees nor any commission. Instead, it makes money from management fees from 3rd-party ETFs and Schwab ETFs. While the company’s accounts are free, you need a balance of $5,000 to open an account. This is the highest minimum limit for all robo-advisors in the current list.

Schwab provides 401k, IRAs, 401(k) rollover, trust and retirement accounts. Like in Betterment, you fill a risk-tolerance survey when you open the account. This channel is goal-centric and will build a customized portfolio for your survey responses. Their ETF portfolio provides a range of asset classes. In fact, asset allocation forms the base of Schwab’s investment philosophy. Like other top robo-advisors, Schwab uses automatic tax-loss harvesting and rebalancing.

As per Schwab’s site, “You’ll pay the same operating expenses on the ETFs as you’d if you invested by yourself.” The expense ratio for the company’s ETFs varies from .03% to .04%. Strategic Insight Simfund published this data. The operating expenses you pay vary as per the composition of your portfolio. Especially because weighted ETFs have higher operating expense ratios (OERs).

Best Robo Advisor 4: SigFig

If you already use a digital brokerage, then you can consider SigFig. This robo-advisor will manage your existing investments too. With SigFig, you can hold the existing investments if you’ve shares of some specific companies. These include Fidelity Investments, TD Ameritrade Holding Corp., and Charles Schwab Corp. The robo-advisors develop a diversified, tax-effective and intelligent portfolio.

Like other companies, SigFig needs you to fill a risk-assessment survey. Then it customizes your portfolio. The least account balance is $2,000 and accounts below $10,000 are free. Accounts over $10,000 pay a fee of .25%. But, you’ve to pay this fee only for the sum over $10,000.

SigFig provides two types of accounts. First is ‘managed account’ and second is ‘portfolio tracker account.’ If you’re managing your account, then you may use SigFig to streamline tracking your portfolio’s performance. Its handy dashboard tools help you with this.

The managed account offers a range of features. This includes calls with financial planners, tax-loss harvesting, asset allocation optimization, automatic reinvesting and rebalancing.

The robo-advisor is expanding its partnerships and features. In March 2017, SigFig and Wells Fargo became partners.

Best Robo Advisor 5: Wealthfront

Wealthfront is also a robo-advisor giant with more than $7.5bn AUM till October 2017. It makes a diverse and personalized portfolio by risk-assessment survey. Your Wealthfront account is opened at APEX, and the company makes investments on your behalf.

Recently, Wealthfront reduced its threshold investment amount to $500. This is quite affordable for masses. Plus, there isn’t any management fee for accounts under $10,000. But, once you touch $10,000 mark, the fee is .25% of AUM. Like SigFig, the initial $10,000 is free. Presently, Wealthfront provides a referral program too. This program gives you and your referee an additional $5,000 which doesn’t have any management fee. There aren’t any trading fees as well. The mutual fund fee average is .12%.

Wealthfront provides a range of portfolio management services and different types of accounts. This includes trust accounts, individual accounts, 529 College Savings Plan, IRAs, etc. The company uses a tax-optimized direct investment approach to tax-loss harvesting. Under this approach, the company buys individual stocks that represent an index rather than the real index ETF. As a result, it can sell some stocks for tax-loss harvesting. The company even does ‘daily tax-loss harvesting.’ Lastly, Wealthfront provides timely rebalancing. In fact, Wealthfront is the only robo-advisor to provide direct indexing. Presently, people with $100,000 or more in the company get this service. The company presents other extra features for people with $100,000 or above in a joint or individual investment account. This includes its new portfolio of credit program. To sum, clients who satisfy the minimum limit become eligible for a loan up to 30% of their balance.

Wealthfront gives such loans at an attractive interest rate of 3.25-4.5%. There’s also a flexible repayment scheme. Cash put into the investment account related to the loan is first used for the loan’s balance. It is not reinvested before doing this. But, there’s no definite period of the loan.

Besides the features we saw above, Wealthfront also gives many value-added features. E.g., Path is the name of its financial planning experience. You can access this feature from your dashboard. It reviews your savings and spending pattern. You’ll get recommendations by your habits.

Concluding Thoughts

There’re many robo-advisors out there. And many expert discount brokerages have launched new automatic investment options like TD Ameritrade. Other famous robo-advisors are transforming themselves like TradeKing Advisors. This company was on the top of last year’s list and was re-launched as Ally Invest. It was a result of Ally Financial Inc’s takeover of TradeKing in 2016.

The ideal robo-advisor varies from investor to investor. People who prefer having a human advisor besides automatic investing should opt for Personal Capital or Vanguard. The frugal or young investor who wants low fees can pick Schwab or Wisenbanyan. There’re many strong robo-advisors, and this list gives an insight into some of the top robo-advisors out there.

What is your thought on how to find the best robo advisors? We hope this article can help you make money, get rich and become a millionaire. Please feel free to share your comment with us.