These days, individual investors have a lot more tools at their disposal to help manage their money like pros, even if they don’t have a lot of knowledge and experience with investing. One tool that has become very popular for individual investors in the past couple of years is the robo-adviser.
Because so many new robo-advisers have popped up and gained traction in the past year or two, it may be difficult to decide which one is best. This review of five major robo-advisers may help you select which one to use to effortlessly manage your investments.
Vanguard expanded their investment services by launching Vanguard Personal Advisor Services to help customers save money and make better investment decisions. Vanguard Personal Advisor Services can help you meet goals like investing for retirement, saving for a college education, buying a home, or just basic wealth building for the future.
According to John Woerth, public relations spokesperson at Vanguard, “Vanguard Personal Advisor Services is a hybrid that offers the best of both worlds — the user-friendly online experience and sophisticated investment modeling of a robo-advisor, coupled with the judgment and coaching of a professional advisor.”
Vanguard Personal Advisor Services appoints an adviser to serve as your financial coach. Based on your goals, this adviser helps craft a custom, investing plan that is meant for the long haul, regardless of how the markets change.
Vanguard doesn’t offer automatic tax-loss harvesting, but they can help minimize your tax burden through asset allocation. This means being more efficient with both taxable and tax-advantaged accounts. They can also help create a tax-friendly distribution plan for retirement.
Vanguard Personal Advisor Services requires an account minimum of $50,000.
Vanguard is known for their low-cost products, and this holds true for Personal Advisor Services, as well. The annual cost is 0.30% of the assets under Vanguard’s management. For example, if you have invested $250,000, the cost would be $750 per year.
Many people are familiar with Personal Capital’s robust money management dashboard, including free cash-flow monitoring, asset allocation and portfolio performance, fee analysis, investment checkup, and their retirement planner. However, you may not be familiar with Personal Capital’s wealth management services.
Although Personal Capital is sometimes lumped in with robo-advisers, they claim Personal Capital doesn’t exactly fit into this category.
According to their website, they are different because they “have a team of financial advisors based in San Francisco and Denver to work one-on-one with [their] clients.”
Last year, Personal Capital reduced their minimum asset requirement from $100,000 to $25,000, making it easier for more people to get started. Plus, their web interface is very friendly for users who enjoy managing their information online.
Your money is invested in exchange traded funds (ETFs) to leverage asset allocation, tax-loss harvesting, and rebalancing. You also have access to Personal Capital’s full suite of financial planning services and a licensed team to answer questions on college planning, estate planning, home purchases, 401(k) allocation, and more.
Personal Capital charges a flat 0.89% for the first million assets under management. After the first million, this fee is reduced by 0.10% per additional million dollars.
One nice feature of Personal Capital is the ability to see a complete overview of your finances right from their dashboard.
Betterment is another popular robo-adviser that uses software and algorithms to help manage your money based on your risk tolerance.
Betterment takes the guesswork out of asset allocation by investing your money into a fully diversified index-fund portfolio made up of 12 ETFs. They also offer fractional shares, broader diversification, and tax-loss harvesting — none of which are available when purchasing ETFs directly.
There is no minimum required deposit to open a Betterment account.
If you automatically deposit $100 per month and your balance is under $10,000, Betterment’s fee is 0.35% annually. Without an automatic deposit of $100, the fee is $3 per month.
Once your account reaches $10,000, automatic deposits are no longer required and the annual fee is 0.25% per year. If your balance is over $100,000, the fee is just 0.15% annually with no recurring deposit required.
Wealthfront and Betterment have a lot of common features, like the use of modern portfolio theory to determine your diversified portfolio of ETFs. Also similar to Betterment, Wealthfront offers automatic rebalancing and tax-loss harvesting (for taxable accounts).
Wealthfront offers several types of accounts, including taxable investment accounts, traditional IRAs, Roth IRAs, Simplified Employee Pension (SEP) IRAs, IRA transfers, and 401(k) rollovers.
Unlike Betterment, Wealthfront does have a minimum amount required to open an account. However, it is only $500, down from $5,000 when the service began. There is no annual fee for the first $10,000, but the fee increased to 0.25% annually above $10,000.
Wealthfront also offers tax-optimized direct indexing for accounts over $100,000. This means Wealthfront directly purchases over 1,001 securities from the S&P 500 and S&P 1500 indices and an ETF of smaller companies. This allows for further tax-loss harvesting and reducing annual fees.
Recently, Wealthfront also began offering a 529 College Savings Plan, which is also free for the first $10,000. Nevada residents get the first $25,000 for free. After these amounts are reached, the fees are 0.43%-0.46% per year.
The biggest advantage of using Schwab Intelligent Portfolios is their lineup of 54 ETFs, which is significantly more than Betterment and Wealthfront’s asset classes of 12 and 11, respectively.
Schwab has also attracted a lot of attention for having a low account minimum of only $5,000 and no account fees outside of the annual ETF fees.
Tobin McDaniel, president of Schwab Wealth Investment Advisory, said, “We think our service has a unique combination of features compared to similar types of products in the industry. We’re not charging any advisory fees, our portfolios are sophisticated with up to 20 asset classes using both cap-weighted and fundamentally weighted strategies, we have live investment professionals available 24 hours a day and 365 days a year, and our service is backed by the security and stability of a firm with $2.7 trillion in assets and 40 years of experience working on behalf of investors.”
After you sign up with Schwab, you are given a 12-step survey to help determine things like your goals for investing, a timeline for retirement withdrawals, and your risk tolerance. This will help determine the right mix for your investments. The selection services for ETFs with Schwab tends to be more complex, and most portfolios are made up of a larger number of funds than with other robo-investing companies.
One of the problems with using Schwab Intelligent Portfolios is their fee structure. The Department of Labor’s recent fiduciary ruling says fees have to be level regardless of what you invest them in. Critics have pointed out that since Schwab doesn’t earn the same commission on all products, they are violating the Department of Labor’s new rules.
To further complicate things, a significant portion of their ETFs are allocated in cash. Because Schwab is earning money from this cash, their no account fees claim isn’t exactly accurate or transparent. Again, this doesn’t meet the Department of Labor’s fee level fiduciary rules.
Which Robo-Adviser Is Right for You?
Even with all of this information, it can still be difficult to determine which robo-adviser is right for your investing needs. The decision depends on several factors, including how much you have to invest, how much the service costs, and which features are most important to you. Whether you choose a robo-adviser, a traditional financial planner, or a combination of the two, or choose to do it yourself, the most important thing is you are planning for your future.