With so many robo advisors to choose from, it'd be easy to succumb to analysis-paralysis and conclude that each is essentially the same as the others. Not true.
Yes, they do share some characteristics—algorithm-driven portfolios, online dashboards, an adherence to modern portfolio theory—but as they say, the devil’s in the details.
Some robos fully automate the investment process, from soup to nuts. Others offer hybrid platforms that incorporate the services of a human financial advisor (or team of advisors). Still others are simply mechanized offerings from well-established wealth management shops. And at least one is actually an advisor masquerading as a mobile app.
Here, we break down our list of some of the largest robo advisors by assets, and the big differences that distinguish each.
VANGUARD PERSONAL ADVISOR SERVICES
By far, the juggernaut is Vanguard’s Personal Advisor Services (PAS), which, with $47 billion in assets under management, dwarfs just about every other robo advisor in the space.
Yet, PAS isn’t truly a robo, not in the strictest sense, since Vanguard’s human advisors hold your hand from startup to shutdown. To open an account, investors must first meet with a real-life advisor, who creates a customized portfolio for each client; then that advisor continues to regularly touch base. Automation only exists in service of the human connection, which has resonated with Vanguard’s baby boomer clients; according to Vanguard, the “vast majority” of users are age 50 and above.
Another big difference: Unlike other robos on this list, PAS doesn’t actually favor ETFs for portfolio construction. Instead, advisors choose from Admiral Class shares of Vanguard index mutual funds, then pepper in ETF Class shares where needed.
With a minimum investment of $50,000, PAS isn’t for newbies. Also, its 0.30% fee (for accounts below $5 million) is higher than what you’d find at most fully automated robos, though it does undercut many brick-and-mortar RIAs. If you’re a die-hard Boglehead, though, this is the robo for you.
SCHWAB INTELLIGENT PORTFOLIOS
Released in 2015, Charles Schwab’s robo operation has swiftly accrued assets and is well-poised to become the true heavyweight in this space. Schwab’s twin advisories—the retail-focused Intelligent Portfolios, and the RIA-centric Institutional Intelligent Portfolios—together manage $12.3 billion in assets. A third arm, a hybrid model known as Schwab Intelligent Advisory, is scheduled to debut in 2017.
Intelligent Portfolios has a few things going for it, including a much broader universe of investments than the competition: The retail version now offers 53 ETFs, while the institutional side boasts 950. Furthermore, if you don’t like a given fund the algorithm selects for you, you can simply replace it with another on the menu; most other robos lock you in to their preferred portfolios. Best of all, the whole thing is free: no management fees, transaction costs or commissions. You just pay expense ratios.
But there are also two big downsides. First, the large cash allocation Schwab requires—a 6% minimum, up to 29.4%—is likely to introduce cash drag into your returns. Secondly, tax-loss harvesting—which usually comes standard at other fully automated robos—is only available on accounts with more than $50,000 in assets.