Robo advisors burst onto the investment scene several years ago and have been gaining steam ever since. A robo investor is a digital platform that uses automated investment tactics for money management. They’re wildly popular, and now several of the best robo advisors have billions in assets under management. Investors love robo advisors because they offer many of the bespoke services of a professional asset manager at a fraction of the cost.
There are stirring debates online and in the news about how robo advisors stack up against index investing or putting your money in target-date funds with large fund companies like Vanguard, Fidelity, and T. Rowe Price. While a lot of analysts are quick to point out differences in rates of return, they fail to highlight the many benefits robo advisors provide.
Typically, active wealth management and elite advisor services are out of the realm of possibility for most investors. Accounts at elite banks and private wealth management firms have asset requirements, usually in the neighborhood of several million dollars in liquid assets.
As a result, most investors find themselves stuck when their portfolio grows large enough to become complicated, but not yet big enough to qualify for private wealth management. There’s this feeling among investors that they should be doing more tax-advantaging, diversifying, and risk management. But traditionally, no one was there to give them the answers.
The Role of Robo Advisors
Along come robo advisors to bridge the gap. Using software, companies can maintain lean operations and automate tasks that ultra-high net worth clients have enjoyed for decades. Investors can’t expect flashy reports or someone to pick up the call and chat at length about estate planning. They can, however, get the benefits of tax-loss harvesting and intelligent portfolios. Fees are significantly lower compared to accounts managed by financial advisors as well.
So, which are the best robo advisors? Well, if you are interested in getting access to some of the money management perks of larger accounts like automatic rebalancing, they’re worth a look. The good news is that as they continue to grow, their fee base grows as well. With the money, robo advisors can be expected to keep rolling out products that have been out of the average investor’s reach. Read on for a review of some of the best robo advisor options currently out there.
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Wealthfront – For Low Maintenance Investors Who Want Options
Wealthfront boasts an incredibly impressive management team with a ton of experience in the industry. Burton Malkiel, author of the famous book, “ A Random Walk Down Wall Street,” is their Chief Investment Officer. Their reputation has pushed to the top of most people’s list of robo advisor rankings. The money has followed as well. Wealthfront currently manages over 11 billion dollars, an astounding feat considering the short time they’ve been in business.
Fees and Accounts
What draws investors to Wealthfront? They have a shallow barrier to entry. The account minimum is $500, and they don’t charge any account management fee for anything under $5,000. What’s more, for every friend you refer who opens and funds an account, you’ll get an additional $5,000 managed for free.
Wealthfront welcomes taxable accounts (both individual and joint), 529 college savings plans, every kind of IRA, and even trusts. The only thing, though, is those low management fees mean no human wealth advisors waiting around to pick up your calls or walk you back from the ledge if the market dives. The tremendous online portal is pretty much all you get to look at and adjust your investments. It’s great for people who love hands-off financial management, low fees, and free financial planning tools.
When you have enough actually to pay a management fee, it’s a very reasonable 0.24%. Exchange-traded funds (ETFs) expense ratios average just 0.08%. There are no annual account fees, charges for closing an account, or for making transfers.
Now let’s talk a bit about the perks. One of the best features offered by Wealthfront is daily tax-loss harvesting on all accounts. There used to be an account minimum for this feature, but Wealthfront now provides this incentive to all account holders. With tax-loss harvesting, Wealthfront continuously monitors your portfolio via algorithms. When there’s an opportunity, the company will sell underperforming investments at a loss and transfer the money into another similar fund. This allows you to claim a loss on your taxes at the end of the year and potentially lower your tax obligations.
As your account grows, it will build into higher tiers of tax-loss harvesting with potentially even more significant benefits. Accounts over $100,000 get tax-loss harvesting services at the individual stock level, and assets over $500,000 grant users access to Smart Beta. Smart Beta is a method of tax advantaging based on decades of research. Rather than simply putting your money into an ETF, Wealthfront will put the money directly into individual stock holdings.
In addition to tax-loss harvesting, Wealthfront offers free portfolio rebalancing to every client. It’s another reason why so many rank them among the best robo advisors. This isn’t your run-of-the-mill quarterly rebalancing either. Wealthfront automatically rebalances your account on an ongoing basis. Every automatic deposit or investment is allocated accordingly to keep your account as close to your stated allocation targets as possible.
Wealthfront’s site is easy to use and allows account holders to plan for college, a home purchase, paying down debt, and other financial goals. You can even plan for a work sabbatical or list a target retirement date. The more information you plug into the account concerning spending habits, external accounts, mortgages, and other accounts, the better Wealthfront will be able to project your financial future. You can even link your Coinbase account to count cryptocurrency holdings.
The company offers clients with at least $100,000 in assets with Wealthfront, a line of credit of up to 30% of the portfolio balance. No credit check or application necessary. Annual rates fluctuate, though, and a margin has to be maintained, so proceed with caution.
Aside from the line of credit, the Wealthfront Cash Account pays 2.07% APY with $1 million in FDIC insurance coverage. The account has no account or management fees.
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Betterment – The Largest Player with a Great Mix of Basic and Premium Accounts
Betterment has been the leading robo advisor in terms of assets under management for years. With around $15 billion under management, the company is one of the best robo advisors and a leader in the industry. When Betterment makes changes to its offerings, other advisors take notice. Betterment does a great job of mixing passive robo investing with optional active management services like financial planning packages and access to human advisors. It’s really a mix and match that does an excellent job of giving every investor what they want.
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People love starting with Betterment because the company does such an excellent job of projecting a path to wealth. To open an account, there’s no minimum initial investment. However, when a Betterment account crosses the $100,000 threshold, clients get access to what many average investors desire: conversations with Certified Financial planners (CFPs). With Betterment Premium, account holders get unlimited phone access to CFPs to discuss strategies, how to incorporate a considerable expense or windfall, and how to manage the tax implications of investing. Premium accounts also get active monitoring from financial advisors.
Premium is more expensive than Betterment Digital, the basic account type. Premium customers pay a 0.4% annual fee, while Digital customers pay just 0.25% every year. There are no fees for account closings or transfers. Betterment accepts rollover IRAs, Roth accounts, traditional IRAs, and SEP accounts. People can entrust investment money with Betterment, as well as taxable accounts. Betterment does NOT currently offer 529 plans.
There’s plenty for you to choose from when it comes to Betterment’s investment offerings. To start investing, customers fill out an easy questionnaire for demographic and necessary risk tolerance to get an idea of what an appropriate portfolio will look like.
The company emphasizes the modern portfolio theory heavily, so they leverage diversification in ETFs across 12 asset classes for a more stable portfolio. Betterment’s on board with the socially conscious investor as well. Investors can opt-out of investing in companies with values on the environment and other issues contrary to their own.
Like most of the best robo advisors, Betterment automatically rebalances all funds via allocating transfers in and out and dividend payments. Accounts are also rebalanced whenever they shift more than 2-3% from investment targets. Rebalancing checks are done daily, so accounts can respond to any significant market swings.
For $199, investors can purchase a starter financial planning package that helps them understand and take advantage of all of Betterment’s offerings. Think of it as a personalized guided tour through the site, investment options and strategy. For a bit more money ($299) investors can buy other packages to get help planning for significant life events like marriage, saving for college, or travel.
People love being able to spend on a one-time package to get the wealth management advice they need. The fee-conscious investors drawn to robo advisors cringe at having to pay an annual advisory fee regardless of how often they speak to their advisor. The pay as you go method Betterment offer suits them fine.
For planning purposes, Betterment is one of the best robo advisors because it also lets you link any external accounts into the RetireGuide to get a full picture of progress toward your financial goals.
In the middle of 2019, Betterment announced it had started offering high-yield savings accounts called Everyday. Currently, the accounts pay 2.04% a year for people who sign up on the waiting list for Betterment’s forthcoming checking account product. They’re going for the all in one investment/banking robo advisor option. For those not interested in the checking account, the interest rate of Everyday is 1.79%.
One exciting offering from Betterment is its Two-Way Sweep product. Investors can link their checking account to their Everyday account, and, based on Betterment’s projections of your spending, it will transfer any projected excess FROM your checking account into Betterment. It may sound a bit dicey, giving them control over transfers, but you’ll get a transfer alert before it happens, so you can cancel it if you need to. It’s an interesting take on encouraging you to invest as much excess cash as possible.
For those inclined, another great benefit from Betterment is that it allows you to donate to charities in a tax-efficient manner with appreciated stocks.
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Ally invest – Best for Investors Looking to Consolidate Accounts
Ally started as an online bank, offering higher yields than other banks because they had no brick and mortar locations. Its early success stuck and allowed Ally to branch out into different account types. Now, it ranks as one of the best robo advisors out there. Ally Invest Managed Portfolios is the bank’s robo advisor that gives you a variety of investments that integrates well with Ally bank accounts.
One of the biggest draws with Ally invest is that you can have your money managed totally for free as long as you keep 30% of your total assets in cash (earning a higher-than-average interest rate). Anything outside of that range is charged 0.3% a year. It’s a great choice if you already keep decent cash reserves or have an existing Ally account to juice your cash returns.
Comprehensive Banking Solution
Ally Invest is great if you want an all in one solution for your investment portfolio. Some people just hate having to log in to multiple accounts to track their finances. With Ally, you can seamlessly access your checking and savings account as well as plan for retirement. The online portal has easy to understand forecasting and planning tools that help you project different financial scenarios.
Accounts and Fees
We’ve already gone over account management fees, but just beware that if you close your IRA account with Ally invest, they’ll charge you $25. They currently accept any type of IRA (Traditional, Roth, and rollovers) as well as trusts and SEP accounts. Joint and individual taxable accounts are also available.
Things to Consider
If you want straight forward investing options across a decent portfolio of available ETFs, then Ally’s a good option. It’s a scaled-down version of a robo advisor though. There is no tax-loss harvesting on any accounts and no access to human advisors. If you love having a comprehensive investment and banking solution in one place or already have an existing relationship with Ally Bank, then this one might be for you.
Ellevest – A Niche Robo Advisor for Women and Socially Conscious Investors
Ellevest makes the list of best robo advisors in 2019 because it gives you a different approach than just lower fees or online planning tools. Ellevest made its name by catering to the female investor crowd with its Impact Portfolios. Impact Portfolios let you put up to half of your money into funds that advance the interests of women.
The response from the public has been overwhelmingly positive. Many women apprehensive of diving into investing have found a home with this robo advisor. While Ellevest will probably never been as big as some of the major players like Betterment and Wealthfront, they’re great for investors with specific needs and interests.
Ellevest is a pioneer in what’s called gender-based investing. It means that the company considers women’s lower average incomes, longer life expectancy, and lifetime earnings curve to build a unique portfolio. One thing a lot of robo advisors tend to overlook with women is that their incomes typically peak faster and decline earlier than men’s do. For you men out there, FYI, you can open an account with Ellevest as well. You can indicate that in your account and Ellevest will adjust projections accordingly.
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Accounts and Fees
Ellevest operates two account tiers, Ellevest Digital and Ellevest Premium. Digital has no account minimums and a nice, low 0.25% annual management fee. Premium charges 0.50% a year and has a $50,000 minimum account balance.
The main difference between the two is that Premium comes with personal executive coaching. Ellevest offers a company career team that helps women achieve their professional goals by assisting them in negotiating salary increases and promotions. Premium investors also get access to CFPs on an appointment basis. Both are great personal options if you’re an investor still working your way through a career.
There are no annual fees or transfer fees. There is a $30 fee charged on outgoing wire transfers, but it’s a third-party charge (Folio). Ellevest offers taxable accounts, traditional and Roth IRAs, and SEPs.
Portfolio Planning Tools
Another thing that sets Ellevest apart among the best robo advisors is their tools that create scenarios specific to your portfolio. Say you want to see what impact increasing or decreasing your monthly investment amounts will have? Ellevest will help let you know what effect your decisions now will have over time.
One exciting feature of Ellevest is that you can set goals and milestones with planning tools. It’s not just a made-up scenario or milestone, either. Ellevest will start to shift the assets you need into more conservative investments as your goal date approaches to makes sure you’ll have the money you need.
Things to Consider
Ellevest is going for a niche market, so it’s not about offering every option under the sun for them. There’s no tax-loss harvesting and no real-time rebalancing. If you’re a woman starting in the investing world, or you want access to the executive coaching and other perks Ellevest is uniquely positioned to provide, then this one’s a winner.
SoFi – One of the Best Robo Advisors for Young and Beginner Investors
SoFi doesn’t want to fill a gap, but rather replace the traditional wealth management model. What sets SoFi apart from other robo advisors is that, in addition to the standard ETF offerings and lower fees, they offer you access to financial advisors and career counselors. It’s really what a lot of people want when they start to build a small portfolio and are looking for guidance.
SoFi is a more recent arrival on the robo advisor scene. However, it’s been aggressive with its offerings, providing free sessions with CFPs, career coaching appointments, and even live events for members. A lot of young investors love the product because it comes close to what so many of us imagine it’s like to have private wealth management. Let’s take a look.
Accounts and Fees
For over a year, SoFI has charged zero management fees. This promotion is expected to last through the end of 2019. There’s no news on what it will be after that, but you can expect it to be in line with some of the fees charged by other major players in this space. There are also no annual fees, closing fees, or transfer fees.
Account types are limited compared to other robos. You can open an individual or joint taxable account, and Roth, traditional IRAs, rollovers, and SEP accounts are available.
SoFi isn’t kidding around when it comes to investment choices. They have ETFs from over 20 different access classes, which makes them one of the best robo advisors. Investors have an abundance of choices to fit preference and risk appetite. You’re guaranteed to find something interesting to invest in as well as all the staple indexing you need. SoFI builds your intelligent portfolio based on your stated risk tolerance and goals you list out when you open your account. There are choices for investing internationally, U.S.-based ETFs, Treasuries, and even ETFs specific to individual countries.
Additionally, the ETF offers great low fees. The weighted average cost is just 0.085% expense ratio, keeping SoFI competitive with the most economical cost robo options on the market.
Planning is where SoFi stands out. Even without fees, clients have unlimited access to internal advisors to help chart out their investment future. All advisors are CFPs and recommend financial decisions according to your best interests. Consultants don’t operate on commissions, so you can trust the advice they are giving you is as sound as possible.
In addition to the financial planners, if you invest $20 or more a month with SoFi, you’ll get access to free career coaching and members-only events. So far, SoFi has held networking dinners and exclusive talks centered around career and investing.
Continuing its focus on younger investors, SoFI offers reduced interest rates on loans called SoFI loans. Cash held with SoFI can be held in SoFI Money, currently paying 1.80% a year with unlimited reimbursement for ATM fees and $1.5 million in FDIC coverage.
Things to Know
Currently, SoFi offers no tax-loss harvesting and limited account type options. They say that rebalancing happens at least quarterly. It’s free, but probably not as comprehensive as some more established robo advisor companies yet. Look for SoFi to continue adjusting its offerings and business model as it continues to grow its member base.
The Bottom Line
There are a bunch of options to consider when choosing the best robo advisors for you. Some have more investment options, others more personal attention. Knowing your approach and risk appetite, which one’s for you?