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.
Among the original robo startups, Betterment remains top dog, with $6.7 billion in assets under management. For good reason, too, as Betterment requires no minimum account balance. It’s hard to argue with $0.
But Betterment’s slick tech is where it really shines. The robo offers several innovative tools that make investing easier and more intuitive, such as the SmartDeposit option, which searches your checking account for excess cash, then automatically deposits it into your account.
Also worth mentioning: Unlike almost all other robos, Betterment can purchase fractional shares of ETFs—meaning, nothing is left uninvested in your portfolio.
Betterment’s main drawback is its fee structure for smaller accounts. For accounts with less than $10,000, Betterment charges 0.35%, but accounts without a recurring deposit of at least $100 are instead charged $3 monthly. (The charge disappears as account sizes grow.) That makes Betterment more expensive for beginner investors than some of its competitors, despite its $0 required minimum balance.
Nipping at Betterment’s heels is Wealthfront, another of the original robo startups. With its sizable Silicon Valley customer base, this robo currently boasts $4.3 billion in assets.
As fully automated platforms, Wealthfront and Betterment both function similarly, but Wealthfront’s portfolios include some ETF providers and asset classes that Betterment doesn’t, such as real estate and natural resources.
Wealthfront also engages in direct investing for taxable accounts over $100,000—meaning it’ll replace certain equity ETFs with individual stocks of the same index to exploit additional tax-loss harvesting opportunities. That’s no small potatoes: Wealthfront claims that when used in combination with its daily tax-loss harvesting, direct indexing can add up to 2% to annual returns.
Wealthfront’s fee structure—no charge for the first $10,000, then a flat 0.25% thereafter—makes it friendlier to beginner investors than Betterment. (Wealthfront, however, becomes more expensive beyond the first $100,000.) Its $500 account minimum should also be attractive to low-asset investors.
When it comes to your finances, Personal Capital is all about the big picture. The robo offers both free investment tools and a hybrid advisory that manages roughly $2.8 billion in assets. These tools—which include an online dashboard for all your investment accounts, an expense tracker and a portfolio asset allocation optimizer—are useful in and of themselves, and you don’t need to sign up for the robo to use them.
For those who do pay, Personal Capital offers plenty of human interaction as well as fancy tech widgets. Clients have access to financial advisors through phone, email or video chat (even face-to-face, if you’re in Denver or San Francisco).
Higher net worth investors get several additional perks; for example, clients with $100,000-$999,999 invested will have individual securities included in their portfolios, while those with $1 million or more gain access to private banking services and quarterly portfolio reviews with an advisor.
However, all those add-ons don’t come cheap. Personal Capital’s tiered fee structure charges 0.89% for the first $1 million, and 0.49% for $10 million and above. The account minimum is also high, at $25,000. So while Personal Capital is cheaper than a traditional RIA, it’s still significantly higher than Betterment and Wealthfront, and even other hybrids like Vanguard’s Personal Advisor Service.
Purchased by BlackRock in 2015, FutureAdvisor is a lot like other hybrid robos, save for one big difference: FutureAdvisor measures investors’ risk tolerance and generates portfolios for them for free, in the hopes that they’ll then sign up for the premium service and have the firm’s advisors manage the details. Nonpaying do-it-yourself investors, however, are free to act on the advice however they like. The model seems to be working for FutureAdvisor, which now manages some $969 million in assets.
Paid users also gain direct access to financial advisors, via phone, chat and email. Notably, though, a relationship with these advisors isn’t forced on you the same way other high-touch robos are. You can sign up for an appointment, or not—your call. Either way, real humans are still involved behind the scenes, monitoring every portfolio in tandem with the algorithms.
FutureAdvisor charges a flat 0.50% fee, which isn’t cheap, but undercuts its closest competitor, Personal Capital, at all but the highest account sizes. FutureAdvisor also has a much lower account minimum than Personal Capital, at $10,000.
Accounts must be held at TD Ameritrade or Fidelity, but if they aren’t, FutureAdvisor will help you move them. Future-Advisor will also manage Fidelity 401(k)s for free.
Unlike other robos on this list, the $403 million Rebalance IRA has one purpose only: readying investors for retirement. As its name suggests, the firm specializes in managing IRAs, though it can manage Schwab and Fidelity 401(k)s and some taxable accounts, too.
Rebalance IRA mimics the approach many wealth management shops take, pairing each investor with both an investment advisor and service rep specializing in retirement. Clients can check in with them at any time, and an annual portfolio review comes standard with the service.
Also like an elite wealth management shop, the account minimum is high—$100,000—which prices out most beginner investors. Of course, that’s sort of the point, given Rebalance IRA’s single-minded pursuit of preretirement-age investors.
With its flat fee of 0.50%, Rebalance IRA undercuts fellow hybrid Personal Capital significantly for all but the highest net worth investors, even though Rebalance IRA’s minimum account size is four times as high. However, Rebalance IRA is more expensive than fully automated platforms like Wealthfront or Betterment.
Acorns stands out from other robos in that it’s actually a micro-investing app. You link credit/debit cards to the app, and whenever you make a purchase, Acorns rounds it up to the nearest dollar and deposits the excess into a taxable account. From there, your money is automatically invested into one of five broad ETF portfolios. (Funds are taken from your checking account, even if the card linked is a credit card.)
The $257 million firm primarily targets younger investors: For example, college students can use the service free for four years, as long as they have .edu email address. Other investors are charged $1/month for accounts below $5,000, and 0.25% above that.
Though their app is intuitive and easy to use, Acorns itself is a fairly barebones robo: It doesn’t offer any goal tracking or portfolio review tools or even tax-loss harvesting—a real drawback since the service only offers taxable accounts. Experienced investors might also quirk their eyebrows at Acorns’ asset allocations, which include exposure to emerging market stocks, but not developed-market stocks; and corporate bonds and short-term Treasurys, but not foreign bonds or longer-duration issues.
Still, there’s something to be said for making it easy to invest when you’re young, since invested pennies have a way of growing into dollars before long.
E*TRADE ADAPTIVE PORTFOLIO
In mid-2016, E*Trade leapt into the robo-advisory ring with its Adaptive Portfolio service, and the platform’s already gathered $180 million in assets.
E*Trade’s offering differs from others in a few key ways. For example, unlike all the other robos on this list, investors can choose between an all-ETF portfolio or a portfolio that combines ETFs and actively managed mutual funds. (The mutual funds aren’t a given, mind you; they’re only added to the mix if they’re deemed to add value to returns.)
Adaptive Portfolio also makes it incredibly easy to understand what you’d be investing in before you commit; you can answer the brief questionnaire and see your general intended asset allocation and risk profile without signing up.
There’s a $10,000 account minimum for Adaptive Portfolio ($5,000 for a traditional or Roth IRA), which is higher than many of its competitors. But E*Trade makes it easy for existing customers to enroll, which will encourage many in-house conversions and spur asset growth.
Although financial consultants are available by phone and live chat, this isn’t a hybrid that holds your hand, like Vanguard’s Personal Advisor Services. There’s also a conspicuous lack of tax-loss harvesting services, something that’s standard for almost all other robos on this list.
You’ve probably seen SigFig tech around: Its online portfolio trackers have appeared on Yahoo, CNN, USA Today and Forbes. But so far, the company has struggled to capitalize on its ubiquity, amassing only $114 million in assets since 2006.
That has led SigFig to aggressively pursue large institutions over individual investors (though its service is open to both). In May 2016, the firm signed a deal with UBS to develop the bank’s robo platform; in November, it announced an alliance with Wells Fargo to do the same. So if all goes right, SigFig won’t need to directly manage significant assets to grow its revenue.
Essentially, SigFig is much like FutureAdvisor, in that it offers complimentary portfolio tracking tools and a paid investment management service. (Also like FutureAdvisor, SigFig allows you to view the portfolio it’d suggest for you before you commit to signing up for an account.)
As it stands, SigFig’s fee structure—free for the first $10,000, then 25 bps annually—is identical to Wealthfront’s, though its account minimum is five times higher.
Of note, SigFig also offers a Diversified Income portfolio, with a 4.0% target. This account carries a much steeper account minimum—$100,000—and an annual fee of 50 bps.