Over the past 5-10 years we've seen the rise of so called “robo-advisors”.
These automated, algorithm based portfolio management systems manage your investments, without the aid of a human financial planner. In most cases they lower the costs for the average investor substantially, while making it much easier for them to start investing, without the need for substantial initial assets.
BI Intelligence forecasts that:
robo advisors will manage approximately 10% of all global assets under management (AUM) by 2020. This would equate to approximately $8 trillion. So it's clear that these automated services are becoming more prevalent.
Robo-advisors are seeing wider acceptance than ever. People are becoming more comfortable with technology based solutions to common problems.
So what are the top automated investor services that you should consider using?
Investing Pre Robo-Advisor: DIY Or Human Advisor
In the past you really only had a couple of choices when investing. You could:
- Invest on your own using a DIY approach.
- Invest with the help of a financial investment advisor.
Today somewhere in between those two options we have the robo-advisors. Automated portfolio managers have stepped in to fill the need for low cost investment and financial planning advice for newer and younger investors who might not have the wherewithal or desire to invest on the their own, but who don't want to deal with the typically high costs of a traditional investment advisor.
Features Of A Robo-Advisor
In the simplest sense a robo-advisor uses computer algorithms to automate the allocation of assets in your investment portfolio. They typically use established investment principles found in things like Modern Portfolio Theory and Efficient Market Hypothesis, along with their own investor questionnaires to determine the user's level of acceptable risk, which they use to establish an appropriate mix of investments.
So what are some of the features of using a robo-advisor to invest?
- Low cost: Investing with a robo-advisor is typtically low cost in that there are typically low account minimums, along with low annual fees that you pay in order to use the service. Typically annual fees are going to be in the range of 0.25-0.35% of assets.
- Low minimums: Along with low costs for managing the account, typically robo-advisors have a low barrier to entry. Whereas in the past financial advisors often had a high minimum, sometimes even $500,000 or more to even take your call, robo-advisors typically have either no minimum account balance, or a minimum of a few thousand dollars. In other words just about anybody can open an account.
- Better returns: Most investors will see better returns with an automated financial advisor for the simple fact that they don't have to overcome the initial 1-2% fee that many human advisors will charge. In order to overcome that fee your investments will have to do extremely well, and studies have shown that over the long run investing in index funds (which robo-advisors typically use) will produce better returns for most investors.
- Set it and forget it: While there are probably ways to invest that will be lower cost than investing with a robo-advisor, one of the selling points of using one is the fact that they're easy to use without a ton of interaction from you. You set an automated investment amount every month, and the service will automatically invest for you, regularly re-balance your account and even do things like tax loss harvesting to help optimize your taxes. While DIY investing may cheaper, it won't be easier.
Robo-advisors have been growing in popularity simply because they're easy to use, low cost and even new investors are able to take advantage of their advice.
Top 5 Best Robo-Advisors To Consider
So what are some of the top robo-advisors to consider when starting to invest? Here are my top 5 automated investor services currently available.
WiseBanyan was founded February of 2013, and is one of the lowest cost robo-advisors available. I currently have both a Roth IRA and a taxable investment account with WiseBanyan and love it because their costs are just about unbeatable since there are no management fees for their service.
If you have a taxable account that takes advantage of tax loss harvesting there is a fee of 0.25%/month of taxable assets, but the fees are capped at $20/month.
I'd highly recommend checking out WiseBanyan if you're a newer investor wanting to get your feet wet in the investing game. They have extremely low minimums, and no management fees for tax advantaged accounts, while using a similar investing strategy to some of the bigger fish in the robo-advisor universe. I've moved most of my Roth IRA investments over to WiseBanyan currently.
- Account minimum: $10
- Management fee: 0%
Read my full WiseBanyan review here.
What I love about their service is the extremely low minimum, their low costs, and their site is among the easiest to use. They have a laundry list of features that includes automatic rebalancing, tax-loss harvesting, fractional purchase of shares and just about any account type that you might need from Roth IRA or Traditional IRA all the way to taxable accounts. They are probably my favorite full featured robo-advisor.
- Account minimum: $0
- Management fee: 0.25% annual fee. (capped at $2 million)
Read my full Betterment review here.
Wealthfront was founded around the same time as Betterment back in 2008 and is one of my top 3 choices for a robo-adivsor. They are one of the more popular robo-advisors due to their low account minimums and low fees. Their minimum account used to be $5,000, which is still relatively low, but they lowered it even more in the past couple years to make their service more accessible to beginning investors.
If you're a brand new investor their management fees are free up to $10,000 of assets. If you open an account through our link below you can get an additional $5,000 managed for free. For newer investors this is one of the better deals out there. They also have a ton of account types available from Roth IRA, SEP IRA, Traditional IRAs and even 529 education investment accounts now. In addition in February of 2017 they launched a free automated financial planning service called Path – making them an even more attractive option.
- Account minimum: $500
- Management fee: 0%-0.25% (up to first $15,000 managed for free)
Read my full Wealthfront review here.
Vanguard has been around since the 1970s, and is respected as the leader in low cost investing options for the DIY investor with their low cost index funds. If you're a DIY investor they're the way to go in my opinion. They now also have an automated investment advisory service called Vanguard Personal Advisor Services that is somewhat human assisted.
While the fees are in line with other services at 0.3% annually, the only real problem for some investors with VPAS is that they have an account minimum of $50,000. They may be a good option if you're transferring a 401(k) for an old job, or something along those lines, but for new investors opening a new account the higher minimum may be a problem.
- Account minimum: $50,000
- Management fee: 0.3%
Fidelity is one of the best known names in investing, being known as a place where you can get a traditional brokerage account, a credit card or taking advantage of their retirement advisory services. I've had the opportunity to talk with folks at Fidelity for podcasts in the past and I believe they're a good company to work with.
With the Fidelity Go product they're aiming to bring in newer investors, those under 35. They have a relatively low account minimum at $5,000, and their management fees at first glance are slightly higher than the others at anywhere from 0.35%-0.40%. The costs will be slightly lower than stated, however. The 0.35%-0.40% will be lower as they credit most of the ETF fees of BlackRock funds and all of their Fidelity funds.
One small negative to mention is that they don't have tax loss harvesting available for taxable accounts. I'd mainly recommend using Fidelity Go if you're already using other products in their portfolio as it will merge with those seamlessly.
- Account minimum: $5,000
- Management fee: 0.35% for retirement accounts, 0.40% for taxable accounts.
Find A Robo-Advisor That Fits Your Needs
I have listed my top 5 robo-advisors that I would consider using up above.
I recommend these services for a combination of reasons, but typically it comes down to these services having the lowest account costs along with the best combination of account minimums and account features.
All of them have similar investing strategies and typically use ETF index funds to give you the highest returns, while minimizing your costs.
The top 3 I list including WiseBanyan, Betterment and Wealthfront would be my first choice if I were opening an investment account today, and I actually use two of them myself. The other two are also worthy choices, although their higher account minimums may be a barrier for some.
Do you use one of the robo-advisors mentioned above? What do you think of their service? Do you prefer another robo-advisor? Tell us which one in the comments.
|Robo-Advisor||Assets Under Management (AUM)||Annual Fee||Account Minimum||Bonuses||Review|
|Wealthfront||$6.5 billion||0.25% of account balance||$500||$15k managed FREE (Bible Money Matters readers)||Review|
|Betterment||$9 billion||0.25% of account balance. 0.40-0.50% w/ human advisors||None||Up to one year managed FREE||Review|
|WiseBanyan||$80 million||FREE (fees for add-on services)||None||Review|
|Acorns||$257 million||$1/month under $5k. 0.25% of account balance above $5k. Free for college students.||None||Review|
|SigFig||$120 million||Under $10k FREE; 0.25% of account balance above $10k||$2,000|
|Personal Capital||$4.3 billion||0.49% to 0.89% of account balance||$25,000||Review|
|Wealthsimple||$1 billion||Under $5k FREE; $5k-$100k 0.50%/yr; $100k+ 0.40%/yr||None||Up to a $100 sign-up bonus (Bible Money Matters readers)||Review|
|Charles Schwab||$15.9 billion||FREE (They require you to hold 6-30% of portfolio in cash)||$5,000|
|Fidelity Go||N/A||0.35% of account balance;||$5,000|
|Vanguard||$65 billion||0.30% of account balance||$50,000|