Ghosts In The Robo Advisor Machine

August 19, 2014

Not all automated advisory services are created equal.

This is the second blog in a multiple-blog series by’s Director of Research Elisabeth Kashner on the new “robo advisory” industry. The first was titled: “Which Robo Advisor For My Teen?”.


“Robots capable of manufacturing robots do not exist. That would be the philosopher’s stone, the squaring of the circle.”

Ernst Junger, “The Glass Bees


This is the second blog in a multiple-blog series by’s Director of Research Elisabeth Kashner on the new “robo-advisory” industry.

In my last blog, I highlighted a few of the differences among the “robo advisor’s” all-ETF portfolios, making clear that human subjectivity flows through these firms’ asset allocation robots.

Today I’m going to talk about the brains behind the machines. It’s time for a look at the not-so-evil geniuses behind the robots, with a complete overview of each firm’s value proposition and investment philosophy.

Asset allocation is by far the biggest driver of client returns, so we’ll spend most of our time understanding each firm’s investment philosophy. But before we get there, we’ll look at seemingly small details that, for some folks, can make or break an investment decision.

Moderately risk-averse investors in high tax brackets with both taxable and retirement accounts might limit themselves to services that offer municipal bonds as well as asset-location services, so they won’t care about Covestor or WiseBanyan’s philosophies, since these firms don’t currently offer the services they require.

First, the details, starting with costs.

Although all the robo advisors cost far less than the typical human asset manager, they range widely in cost, from the truly free WiseBanyan to 0.50 percent plus trading fees at Future Advisor. That’s $50 for each $10,000 invested, plus trading fees.

Robo fees can come in several forms. There’s the overt management charge, if any, but also, potentially, brokerage fees, custodial fees and the portfolio’s expense ratios. Because most of the robo advisors use the same dirt-cheap Vanguard funds, the range in expense ratios is minimal. It’s all laid out in the table below.

  Wealthfront Betterment Future Advisor Covestor WiseBanyan Invessence
Fees First $10K free, 0.25% thereafter First $10K 0.35%, 0.25% up to $100K, then 0.15% 0.5% + Trading fees Trading fees 0 $250/yr under $100K, then 0.25%
ETF Fees 90% 0.11% 0.11% 0.14% 0.10% 0.08% 0.15%
ETF fees 60% 0.13% 0.13% 0.14% 0.08% 0.10% 0.13%
Muni funds version available? Yes Yes No No No Yes
Tax-loss harvesting Daily Yes Yes No No Working on it
Rebalancing Cash-flow based, with threshhold triggers With dividends, also in conjunction with tax-loss harvesting Quarterly Occasional Yes Quarterly at minimum
Asset Location Yes Yes Yes No No No
Account Minimum $5,000 No minimum $10K for premium level $10K No minimum $5K

Some of these firms won’t work for my son, because even though he received a small pile of cash at his bar mitzvah this year, he doesn’t yet have the $10,000 minimum they require. He’s a Little League umpire too, but he’d have to call hundreds of games to pocket $10,000.


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