Robo-Advisors
How to evaluate and choose on online financial advisor
A "Robo-Advisor" (also spelled Robo-Adviser) is a financial advisory firm that uses a website and software to automate the process of investing in an asset allocation. These companies are also called "online financial advisers" or "online advisory platforms." Each Robo-adviser has a website where you login to see your asset allocation and your investment performance.
Pros of using a Robo-Advisor:
- Roboadvisers provide an asset allocation for each risk appetite and specify the funds to buy
- Roboadvisers automatically rebalance your portfolio, buying and selling funds as needed to maintain your target asset allocation. Some will even optimize your portfolio for tax considerations.
- Roboadvisers typically charge lower fees than a local financial advisor. For example, Wealthfront charges 0.25% of assets, and local financial adviser typically charges at least 300% more (0.75% of assets)
Cons of using a Robo-Advisor:
- Roboadvisers are expensive compared to using a model portfolio for asset allocation. For example: a model portfolio publisher might charge a fixed fee of $249 per year. Wealthfront charges 0.25% of assets, or $1,250 if you have $500,000 invested. So in this case Wealthfront is five times as expensive.
- Roboadvisers are new and do not have much track record
- Many Roboadvisers publish their fixed asset allocations and you could replicate them on your own at a discount broker.
- Most Roboadvisers use static (fixed) portfolios with quarterly or annual rebalancing, so you are unable to avoid or benefit from monthly market changes
Questions to ask a Robo-Advisor:
- What is the 7-year performance history for each of your asset allocation portfolios?
- Can I see a risk vs. return graph for all your portfolios compared to the market, including the 2008 downturn?
- What is maximum drawdown (largest percentage loss) for each of your asset allocation portfolios over the last 7 years?
- How have your asset allocation portfolios performed compared to the leading all-in-one allocation funds, such as Vanguard Wellington (VWELX), Vanguard Wellesley (VWINX), or Janus Balanced (JANBX)?
List of Online Financial Advisors
WealthFront location Palo Alto, CA year founded 2011 phone 650.249.4258 advisory fee 0.25% lower fee for larger accounts? No account minimum size $5000 additional fund fees? Yes, for ETFs additional trading commissions? No investing style passive/strategic/static invests in what? ETFs portfolio transparency yes assets under management $1,000 million registered Investment Advisor? Yes account aggregation? No rebalancing included as part of the service? Yes rebalance notifications? included rebalancing tool or automation for DIY? not applicable (rebalancing is part of the service) custodian of assets Apex Clearing Corporation (Apex) tax-loss harvesting? Yes website www.wealthfront.com
Personal Capital location Redwood City, CA year founded 2009 phone 855-855-8005 advisory fee 0.95% lower fee for larger accounts? Yes account minimum size $100,000 (household total) additional fund fees? Yes, up to 0.11% additional trading commissions? No investing style active/tactical/dynamic invests in what? stocks and ETFs portfolio transparency yes assets under management $300 million registered Investment Advisor? Yes account aggregation? Yes rebalancing included as part of the service? Yes rebalance notifications? included rebalancing tool or automation for DIY? not applicable (rebalancing is part of the service) custodian of assets Pershing Advisor Solutions tax-loss harvesting? Yes website www.personalcapital.com
Betterment location New York, NY year founded 2008 phone 888-428-9482 advisory fee 0.35% lower fee for larger accounts? Yes account minimum size $0 additional fund fees? Yes, for ETFs additional trading commissions? No investing style passive/strategic/static invests in what? ETFs portfolio transparency yes assets under management $406 million registered Investment Advisor? Yes account aggregation? No rebalancing included as part of the service? Yes rebalance notifications? included rebalancing tool or automation for DIY? not applicable (rebalancing is part of the service) custodian of assets Betterment Securities tax-loss harvesting? Yes website www.betterment.com
FutureAdvisor location San Francisco, CA year founded 2010 phone 415-379-0098 advisory fee 0.50% lower fee for larger accounts? No account minimum size $10000 additional fund fees? Yes, up to 0.59% additional trading commissions? Yes, usually up to $10 per trade investing style passive/strategic/static invests in what? ETFs portfolio transparency yes assets under management $13 million registered Investment Advisor? Yes account aggregation? Yes rebalancing included as part of the service? Yes rebalance notifications? included rebalancing tool or automation for DIY? not applicable (rebalancing is part of the service) custodian of assets TDAmeritrade or Fidelity tax-loss harvesting? Yes website www.futureadvisor.com
Asset Builder location Plano, TX year founded 2007 phone 972.535.4040 advisory fee 0.45% lower fee for larger accounts? Yes account minimum size $50000 additional fund fees? Yes, up to 0.45% additional trading commissions? Yes, up to $50 per trade investing style passive/strategic/static invests in what? mutual funds portfolio transparency yes assets under management $650 million registered Investment Advisor? Yes account aggregation? No rebalancing included as part of the service? Yes rebalance notifications? included rebalancing tool or automation for DIY? not applicable (rebalancing is part of the service) custodian of assets Schwab tax-loss harvesting? Yes website www.assetbuilder.com
SigFig location San Francisco, CA year founded 2011 phone (855)-9-SIGFIG advisory fee $120 per year lower fee for larger accounts? No account minimum size $2000 additional fund fees? Yes, up to 0.18% additional trading commissions? No investing style passive/strategic/static invests in what? ETFs from Vanguard, iShares, Schwab portfolio transparency yes assets under management $0.3 million registered Investment Advisor? Yes account aggregation? Yes rebalancing included as part of the service? yes rebalance notifications? included rebalancing tool or automation for DIY? Yes custodian of assets TDAmeritrade (preferred), Fidelity, or Schwab tax-loss harvesting? No; planned website www.sigfig.com
MarketRiders Portfolio Manager location Palo Alto, CA year founded 2008 phone 866-990-3837 advisory fee $149.95 per year lower fee for larger accounts? No account minimum size $0 additional fund fees? Yes, for ETFs additional trading commissions? No investing style passive/strategic/static invests in what? ETFs portfolio transparency yes assets under management 0 registered Investment Advisor? Yes account aggregation? No rebalancing included as part of the service? No rebalance notifications? Yes; lists trades needed rebalancing tool or automation for DIY? No custodian of assets broker relationships (not custodial) with Schwab, Scottrade, TDAmeritrade, E-Trade, Fidelity, Vanguard tax-loss harvesting? No website www.marketriders.com