The Five Largest Robo-Advisors
These are digital investment platforms that provide users with financial and investment management advice.
What Is a Robo-Advisor?
Robo-advisors are digital investment platforms that provide users with financial and investment management advice. They use data entered by an investor, such as their financial goals and level of risk tolerance, to provide them with tailored investment portfolios based on algorithms.
Robo-advisors have become increasingly popular due to their accessibility to people who may not have the money or resources to invest in traditional models.
Advantages of using such a platform include lower management and advisory fees, lower investment minimums than traditional finance managers, and efficiency in the investment process. Additionally, some robo-advisors have hybrid platforms, allowing investors to consult with human financial advisors.
Different robo-advisors offer different features, and potential users should evaluate the various options available to them based on their individual goals and requirements.
The Five Largest Robo-Advisors
This article defines the most significant assets under management (AUM). Assets under management are the total market value of all the investments or financial assets that the individual or company manages.
| Company | AUM (in USD) | Number of Clients |
|---|---|---|
| Vanguard | 206.6 billion | 1,100,000 |
| Schwab | 65.8 billion | 262,000 |
| Betterment | 26.8 billion | 615,000 |
| Wealthfront | 21.4 billion | 307,000 |
| Personal Capital Advisors | 16.1 billion | 26,000 |
The data in the above table was taken from Forbes.
Vanguard
Vanguard is an investment management company with more than $7 trillion in global assets under management.
Vanguard has two robo-advisors: Vanguard Digital Advisor, an utterly robotic platform, and Personal Advisor Services, a hybrid platform offering automated portfolios and live advisors.
Vanguard Digital Advisors charges a 0.15% fee and requires new clients to invest a minimum of $3,000. However, its low cost compared to competitors makes it a good choice for young investors.
Investors seeking more advanced options (such as tax-loss harvesting and SRI or ESG investment portfolios) may want to consider a different platform.
When you create your account, you will be given a questionnaire to evaluate your risk tolerance. In addition, Vanguard Digital Advisor offers an interactive interface that allows you to go over different scenarios with a slider to gauge your risk tolerance.
Other questions include your income, saving habits, and retirement plans. Vanguard will then provide you with an overview of your goals, including whether you are on the right track to achieving them.
Vanguard Digital Advisor allows you to use a taxable brokerage account or a tax-advantaged retirement account. Based on your risk tolerance and goals, your portfolio will consist of different Vanguard exchange-traded funds (ETFs).
The Digital Advisor's simple interface, retirement planning tools, and low fees make it an attractive option for many investors.
However, its minimum balance may be daunting for new investors, while more experienced investors may not appreciate the lack of advanced features and the inability to consult a professional.
Vanguard's Personal Advisor Services charges a fee of 0.30% of a customer's assets under management, requiring new clients to invest $50,000 minimum.
Investors can include funds from an individual retirement account (IRA) and/or a brokerage account in calculating the minimum balance, provided these accounts are under Vanguard.
Like the Digital Advisor, Personal Advisor first assesses your risk tolerance and allows you to link any IRAs, 401(k)s, or 529 accounts. It then appoints you to a financial advisor to discuss your situation, define your goals, and tailor your investment portfolio.
Your portfolio will consist solely of Vanguard exchange-traded funds (ETFs). In addition, investors can opt-in to Vanguard's five-fund active equity portfolio, which offers higher potential returns but has higher expense ratios.
Vanguard's Personal Advisor Services have different fees based on your assets under management:
| Assets | Annual Fee |
|---|---|
| Less than $5 million | 0.30% |
| Between $5 million and $10 million | 0.20% |
| Between $10 million and $25 million | 0.10% |
| Greater than $25 million | 0.05% |
Personal Advisor Services are excellent for investors looking for relatively inexpensive access to financial advisors. While $50000 is a significant sum, it is less than a typical financial advisor would require to provide their services.
However, like the Digital Advisor, Personal Advisor Services do not provide tax-loss harvesting, which may deter confident investors.
Schwab Intelligent Portfolios
The Charles Schwab Corporation, commonly referred to as Schwab, is a financial services company that provides various services.
Schwab Intelligent Portfolios is their robo-advisor that provides low-cost, flexible investment options. It does not have any annual management fees but requires an investment minimum of $5000.
Schwab's hybrid platform, Schwab Intelligent Portfolio Premium, includes access to certified financial planners for a $300 set-up fee and a $30 monthly subscription fee. However, it requires a considerably steeper investment minimum of $25000.
Investors can use different account types, including individual and joint brokerage accounts, individual retirement accounts (IRAs), simplified employee pension IRAs, and UGMA and UTMA custodial accounts.
Once investors outline their risk tolerance and financial goals, Schwab creates an automated portfolio of around 20 exchange-traded funds. In addition, investors are offered a much higher degree of fund diversification, with access to 51 ETFs.
Additionally, every portfolio includes a mandatory cash allocation ranging from 6% to 30% of your assets.
Some of the additional features provided by Schwab Intelligent Portfolios include the following:
- Tax-loss Harvesting: For investments in taxable accounts greater than $50,000, Schwab provides tax-loss harvesting by selling investments that have experienced decreases in their value. Additionally, investors can invest in municipal bonds instead of taxable bonds, possibly reducing taxes owed.
- Dashboard: Schwab's investment dashboard has various analytical tools that allow you to evaluate your portfolio's past and future performance and how your investments meet your financial goals. In addition, investors also have access to financial planning tools.
- 24/7 Customer Service: The fee-free investment option under the basic account and the widely diversified portfolios make Intelligent Portfolio an attractive option. Additionally, since the premium fee is fixed, the higher the investment, the smaller the percentage of the investment is paid as the fee.
However, the requirement to hold a certain percentage of your assets as cash can dampen investors' returns. Moreover, investors do not even have access to this cash in the case of emergencies. Additionally, Schwab does not offer ESG investing.
Betterment
Betterment was the first robo-advisor, founded in 2008. Like the previous two investment companies, it provides a purely automated platform and a hybrid premium platform.
Betterment Digital has an annual management fee of 0.25% and allows customers to speak with professionals at a charge. For example, a 45-minute session to discuss your investments costs $199, while a 60-minutes session of financial checkups or financial planning costs $299.
Betterment Premium has an annual fee of 0.40% for investors with assets greater than $100,000 and allows users to speak with certified financial planners for free and as many times as they desire.
Once you provide your financial goals, you can select your type of account (taxable or IRA) and link your bank account to set up your deposits.
Based on your information and goals, Betterment will provide you with multiple investment portfolios tailored to your needs. Investors can choose from six different portfolios.
The default Betterment Portfolio will generally consist of a combination of ETFs, mutual funds, and bonds, depending on an investor's risk profile. However, Betterment also provides investors with the following portfolio options:
- BlackRock Target Income: This portfolio is a bond fund, a good option for investors who want a steady income stream.
- Goldman Sachs Smart Beta: This portfolio tries to earn outsized returns for low-risk investors through diversification strategies.
- Socially Responsible Investing: This portfolio invests in ETFs consisting of companies that meet the standards for environmental, social, and governance (ESG) factors.
- Flexible Portfolio: This portfolio allows investors to adjust the weight of different asset classes. For example, investors who wish to invest more heavily in stocks than bonds or vice versa can make those changes.
Some of the features provided by Betterment include:
- Access to Professional Financial Planners: As mentioned above, investors using both Betterment Digital and Betterment Premium have access to certified financial planners.
- Tax Management: Betterment offers tax-harvesting to all its portfolios. Betterment also has Tax-Coordinated Portfolios, which require users to open retirement and taxable accounts. Betterment then reallocates assets between these accounts to make them more tax-efficient. For example, it may allocate bonds to your retirement account so that any regular income is not taxed, thus reducing your income taxes. To compensate for this, Betterment may allocate more stocks to your taxable account to balance your portfolio.
- Betterment Checking: Betterment offers users a checking account with no maintenance, overdraft, or ATM fees.
- Betterment Cash Reserves: Betterment offers a savings account with a relatively high-interest rate of 1.1%.
Overall, Betterment is beneficial for young investors as it focuses on investors' goals, offers diverse investment options, provides tax management, and is a low-cost option. In addition, its range of features makes it an attractive choice to new and more experienced investors.
Wealthfront
Wealthfront is a completely automated investment platform with over $21 million AUM. Investors must pay a minimum startup sum of $500 and an annual fee of 0.25%.
Like most other robo-advisors, Wealthfront offers taxable accounts and IRAs. However, it is one of the few that also offers a 529 account, which allows investors to save for college.
When you open an account, Wealthfront will use answers from your questionnaire to recommend an ideal investment portfolio.
Investors with a balance between $100,000 and $500,000 are also eligible for tax-harvesting strategies. Investors with balances more significant than this are eligible for even more advanced features.
Wealthfront follows a passive investing strategy and advises investors to diversify their portfolios across different asset classes. In addition, it offers features such as socially responsible investing (SRI) and, more recently, cryptocurrency.
Users can invest in two trusts- Grayscale Bitcoin Trust (GBTC) and Grayscale Ethereum Trust (ETHE), as well as individual coins.
Other features offered by Wealthfront include:
- Path and Autopilot: The financial planning tool, Path, allows users to view an overview of their finances. Users can connect different accounts, including mortgages, credit cards, and investing accounts, and add their financial goals. The Path then gives them an outline of their progress and how users can reach their goals. Autopilot and Self-Driving Money are tools that optimally allocate users' paychecks to their different financial goals based on an algorithm.
- Wealthfront Cash: Wealthfront offers a cash management account with no ATM or management fees and an interest rate of 1.40%.
- Line of Credit: Investors with at least $25,000 in their accounts can borrow up to 30% of their balance at interest rates between 2.40% and 3.65%. In addition, users are not required to go through credit checks or pay additional fees.
Wealthfront, due to its innovative features, has become increasingly popular. It is perfect for investors interested in keeping tabs on their overall financial health and goals due to the various charting, overview, and analysis features available to users.
However, the platform is entirely online and automated, and users cannot speak to financial professionals at any stage, so potential users must consider this before opening an account.
Personal Capital Advisors
Personal Capital is an automated investment platform better suited for the needs of more experienced investors than new investors. In addition, the investment minimum is much steeper than its competitors, with a minimum of $100,000.
Personal Capital does not only provide users with a robo-advisor platform but also with financial planning and management tools. For example, users can access a dashboard to track their income, net worth, and budgets.
It also has a dedicated investments dashboard, with a retirement planner and savings planner, which allows users to track their progress about their financial goals, and outlines ways users can improve and optimize their savings.
The retirement fee analyzer calculates your annual expenses in fees, so you can keep track of them (especially if they are higher than necessary).
Personal Capital also offers a checkup tool that evaluates the asset allocation in your investment portfolio based on your goals and recommends improvements, if any.
Personal Capital offers its services in tiers based on the investor's assets under management.
| Assets | Annual Fee | Financial Advisors |
|---|---|---|
| Between $100,000 and $200,000 | 0.89% | 1 |
| Between $200,000 and $1,000,000 | 0.89% | 2 |
| Above $1,000,000 | 0.49-0.89% | 2 (as well as access to Personal Capital's Investment Committee and private equity) investment options) |
Personal Capital provides users with a 'Personal Strategy,' a tailored investment portfolio based on your financial goals. Like most robo-advisors, it advises users to invest in low-cost ETFs but, unlike most other advisors, includes individual stocks and bonds.
Its 'smart-weighting' approach to investing allows users to access smaller investments with higher growth potential. Therefore, users utilize a combination of active and passive investing. In addition, like many competitors, Personal Capital offers tax-loss harvesting.
Overall, while Personal Capital offers great financial management features, its high investment minimum and management fees compared to competitors may deter potential users.
Researched and authored by Kiara Andrade
Reviewed and edited by James Fazeli-Sinaki | LinkedIn
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