Best Robo Advisors in 2018
- March 20, 2018
- Posted by: Jeff Gitlen
- Category: Investing
Robo advisors are popular investment platforms that use algorithms rather than investment managers or financial planners to manage your money and allocate your investment funds. These financial services companies offer a high-tech way to invest your money at a relatively low cost.
Because a computer algorithm is choosing how to invest your money and monitoring your portfolio’s performance, they're able to efficiently analyze your financial goals and your risk tolerance to create and routinely rebalance a portfolio of investments that will help you achieve your financial goals.
While most robo advisors focus on providing a completely automated service, some platforms offer a hybrid service that allows you the benefits of accessing a financial planner as well.
In the last several years, a large number of robo advisors platforms have sprung up. Some are start-ups like Betterment and Wealthfront, but traditional financial companies have also created robo advisor offerings like FidelityGo and Schwab Intelligent Portfolios.
If you haven’t given in to the robo investing trend yet and signed up for an account – you or someone you know are likely to try it out in the near future. Robo advisors are growing in popularity according to Business Intelligence. They are forecasting that the best robo advisors will be managing around 10% of all global assets under management by 2020. In total, they expect around $8 trillion globally will be invested via robo advisor services.
Below we will review the different robo advisors available today and what each is best at.
Best Robo Advisors Overall
Betterment and Stash are our top picks for the best robo advisors of 2018. They both have low fees, no minimum balance requirements, and have solid track records of success.
If you are looking for a robo advisor, you can't go wrong with Betterment or Stash. To learn more about these companies, read our full reviews below.
Best Robo Advisor Signup Promotions
Betterment and FutureAdvisor offer some of the best promotions available of all the robo advisors today.
Betterment offers up to 1 year of free management with a qualifying deposit. To obtain the free year, you must deposit over $500,000. For 9 months free, you must deposit at least $250,000. For 6 months free, you must deposit $100,000. For 3 months free, you must deposit $50,000. For 2 months free, you must deposit $25,000. Finally, for 1 month free, you must deposit $5,000.
FutureAdvisor offers 3 months of free investment management for signing up. Your free trial will start the following month after FutureAdvisor makes the first trade in your account. So, for example, if you sign up October 20th and your first trade is made October 25th, your free trial will begin November 1st. Then, you won't be charged until February.
To learn more about these companies, read our full reviews below.
Most Tax Efficient Robo Advisors
Personal Capital and Betterment are our top picks for the best robo advisors for reducing taxes.
Personal Capital offers premium plans with access to advisors who can help with tax-loss harvesting and tax planning. It also helps clients save on taxes by incorporating asset allocation and avoiding mutual funds. The company claims that it can save clients as much as 1% annually through these offerings.
Betterment also helps its clients save big on taxes. The company's goal is to "save you more on taxes than any other service." In fact, Betterment estimates that it can save clients 15% over 30 years, or 0.48% annually. Betterment uses tax-efficient ETFs and organizes assets based on taxes, as well as offering tax-loss harvesting.
To learn more about these companies, read our full reviews below.
Best Robo Advisor for Managing 401K Plans
Our top, and only, pick for the best robo advisor for managing 401k plans is Blooom. Unlike most other robo advisors, Blooom focuses mainly on your exisiting 401k accounts. Most other robo advisors don't offer any type of 401k management service.
Blooom works to eliminate hidden fees (the average client saves 46% on fees) and analyzes your stock/bond mix, among other things, to help you earn the most money. Best of all, Blooom only costs $10 per month and offers a free month so you can see if the service is for you.
The Best Robo Advisors - Full Reviews
Betterment is one of the best robo advisors on the market and was founded in 2008. They have several tiers of service starting with Betterment Digital which does not have an account minimum and charges 0.25%. They also have Betterment Premium which provide access to financial advisors. Betterment Premium charges 0.50% and allows you unlimited access to your team of financial advisors. These services have an account minimum of $100,000.
Betterment’s portfolios invest in low-cost ETFs. They provide tax loss harvesting on all taxable accounts and they coordinate the tax impact of your investments by allocating assets differently across tax advantage and taxable accounts. They support taxable accounts, 401(k) accounts, IRA accounts, Roth IRA accounts, SEP IRA accounts, and trust accounts.
Betterment has a number of different programs that can help you with achieving your financial goals such as the ability to set goals and see your progress towards those goals like creating an emergency fund with 3 to 6 months of income save or meeting you retirement goals. They also have a feature called Smart Deposit which allows you to set an amount that you need in your checking account and Betterment will harvest any amount above that in order to invest it for you.
Unlike some robo advisors, Betterment does not allow you to buy single securities and the additional cost for Betterment Plus might not be worth it for just that one annual phone call. Other robo advisors offer more opportunities to interact with real financial advisors for less.
on Betterment's secure website
Stash is a top digital advisor registered with the SEC that was founded in 2015. As a digital advisor, its platform utilizes technology to offer individual investors access to the marketplace at a low initial cost. The app permits investors to purchase fractional shares at a time, catering to conservative investment strategies.
With Stash, investors receive access to over thirty different investment options with personalized guidance and advice. Stash largely offers options involving exchange traded funds (ETFs) and some individual stocks. Stash provides in-app educational content that is tailored to each user’s individual investing profile. However, while the app can recommend investments, individuals make the final decisions through the app, putting the power in the hands of the user.
Through its Auto Stash program, individuals can set up automatic deposits into their Stash accounts to grow their investments with each paycheck. All funds deposited to Stash are protected by the Securities Investor Protection Corporation (SIPC), and all trades must be done via the app.
To get started, users complete a questionnaire after downloading the investment app to determine their risk level. Then, Stash requires an initial investment of just $5 and the user must link a checking account to the app. Afterwards, a monthly fee of just $1 is required in order to keep investing in the stock market without high commissions typically charged by brokers.
Stash charges $1 per month for account balances under $5,000 and a 0.25% annual fee for accounts with $5,000 or more.
With low fees and a low initial investment requirement, Stash aims to allow more people to invest without the burden of paying high commissions or the hurdle of a steep minimum investment. However, consider this: while a $1 monthly fee may seem low, the flat rate could amount to an above average charge on low value Stash accounts.
on Stash's secure website
SoFi was originally founded in 2011 as a student loan refinance lender. Since then, they have begun offering other services like personal loans, mortgages, life insurance, and now wealth management services. SoFi Wealth Management charges management fees of 0.25% on assets under management and has a minimum account balance of $500. While this is in line with what other companies in the robo advising sphere are charging, SoFi also offers access to financial advisers in addition to their robo advising service for that price.
SoFi allows you to invest in taxable accounts, 401(k) plans, IRA accounts, Roth IRA accounts, SEP IRA accounts, and trust accounts but not 529 plans. SoFi invest in low-cost ETFs that they rebalance automatically on a monthly basis. Their online platform is easy to use and you can clearly see the probability of reaching your retirement goals given your current savings rate using their risk simulator.
One benefit of SoFi’s Wealth Management service is their great customer experience – something that their financial planners also provide. Users can connect with financial advisors via phone or online chat to get help in making investment decisions. SoFi has a great community of members and even organizes regular events in cities across the U.S. Some drawbacks of using SoFi is that they don’t offer direct indexing to help with tax loss harvesting like some of their competitors and they don’t allow you to invest in a 529 plans.
on SoFi's secure website
Wealthfront is a leading robo advisor that offers to help you create a balanced portfolio that's tailored to your personal goals. They have a minimum deposit of $500 and they charge 0% if your account is under $10,000 and 0.25% if your account is over $10,000. Among the features they offer are the ability to buy single stocks, tax loss harvesting, and the ability to purchase fractional shares. They support taxable accounts, 401(k) plans, IRA accounts, Roth IRA accounts, SEP IRA accounts, trust accounts, and they’re one of the few robo advisors who manage 529 plans.
They invest in low-cost ETFs, and automatically rebalance your portfolio like many robo advisors, but Wealthfront also offers customers access to a line of credit to use for things like a down payment on a house or to buy a new car. This allows investors to access up to 30% of their account’s value with no fees and interest rates that start as low as 3.50%-4.75%.
However, Wealthfront doesn’t offer access to real financial planners or advisors. Instead, they offer a program called Path which takes just five minutes to set up and helps you better understand how you can achieve your financial goals. If you want a low cost robo advisor and don’t care about personal advice, then Wealthfront is a good option. If you also want to speak to a human being about your financial goals, then Wealthfront doesn’t currently offer that option.
on Wealthfront's secure website
Acorns was started in 2012 and is aimed specifically at those who are young or who struggle to save. Acorns is a platform that rounds up your purchases on linked credit or debit cards and uses that extra change to help you create a nest egg and invest it. They provide their service for free for four years to college students and charge $1 per month for other investors until their portfolio hits $5,000 and then they charge 0.25% of the account balance per year after that. There is no account minimum, though you have to have at least $5 in your account to start investing. Acorns also invests in low-cost ETFs.
One of the benefits of Acorns is that it makes it easy to save money and start investing. In addition to the amount that you contribute to your Acorns account when it rounds up your purchases, you can also set up a lump sum to invest on a daily, weekly, or monthly basis. These lump sums can be as little as five dollars per transaction.
One of the benefits of Acorns is that it makes it easy to get started investing. They publish educational content on their website to help new investors. One of the biggest shortcoming of using Acorns is that you can only invest in individual taxable accounts – they cannot invest in 401(k) or IRAs. This is particularly disappointing since many of the millennials that they’re targeting are not investing enough in their retirement accounts.
on Acorns' secure website
Personal Capital opened its doors with a singular goal in mind. It wanted to use technology to help people better manage their finances. It does this by offering a robo-advisor service coupled with human advisors.
When consumers set up an account with Personal Capital, they will link their bank accounts. Consumers also add assets, including stock options and property.
Once everything is linked, they can access the tools. Free tools include:
- Retirement Planner
- Education Planner
- 401(k) Fee Analyzer
- Investment Checkup
- Assets Allocation Target
- Upcoming Bills
It also offers a financial advisory service. The service includes account management for transferring assets, investment strategies, personalized recommendations, and goal setting.
The advisory service is a mixture between robo-services and personal advisors, and it includes many of the features people get for free, such as retirement planning and cash flow and spending insights. However, instead of just looking at charts, people get real advice.
Minimums and Fees
Those who want to use the financial advisory services do need to pay a fee. Consumers with up to $1 million in managed assets must pay a fee of 0.89%. Those with managed assets over $1 million pay annual fees that range from 0.49% to 0.79%.
There is an account minimum of $100,000 to use the financial advisory services.
Personal Capital supports both individual and joint nonretirement accounts, as well as the following IRAs:
It also offers advice on 401(k) and 529 plan allocations. However, it does not offer management services for those types of accounts.
Investing with Personal Capital
Personal Capital shines when it comes to investment services. How the service works depends on the individual’s assets.
Those who have $100,000 to $200,000 in assets put their money into exchange-traded funds. The weighted average expense ratio for these investments is 0.09%.
Clients with assets of at least $200,0000 receive a customized portfolio. The advisors use Smart Indexing to invest equally in all available sectors. This is meant to increase returns while reducing risk.
Clients with portfolios of at least $200,000 also have access to two dedicated financial advisors. These advisors are always on hand to answer their questions. The clients also have access to the robo advisor service.
Is Personal Capital a Good Choice?
Personal Capital was meant for two types of investors. Do-it-yourself investors enjoy the free tools, while high-net-worth investors benefit from the combination of robo-advisors and real advisors.
on Personal Capital's secure website
FutureAdvisor is a robo-advisor, with a little bit extra. It has a wealth of free tools for consumers to use, along with some paid services. The tools and services are designed to help people make smarter investments and get more out of their money.
Free Service Overview
Those who need basic help with their investments can utilize the free portfolio analysis service provided by FutureAdvisor. Consumers import their accounts and receive personalized recommendations. These recommendations are available for all accounts, regardless of the broker.
The robo-advisor uses modern portfolio theory when providing recommendations. This is the same method used by most robo-advisors. After receiving the advice, consumers can go to their brokers and initiate trades.
It also sends out alerts when consumers need to rebalance.
Those who want to have their assets directly managed by FutureAdvisor must sign up for FutureAdvisor Premium. Investors need to have accounts at Fidelity or TD Ameritrade to use this service. Those who do not have to move their accounts so FutureAdvisor can trade on their behalf.
Premium users have access to both the robo service and financial advisors. They can call the company to speak to an actual advisor at any time while letting the robo service trade on their behalf.
The premium service also includes daily tax-lost harvesting and automatic rebalancing.
Types of Accounts and Investments
FutureAdvisor supports individual and joint nonretirement accounts, as well as Roth, traditional, SEP, and rollover IRAs.
It also offers an assortment of investment opportunities. The investment types depend on the broker, but FutureAdvisor can cover up to twelve asset classes.
Fees and Minimums
FutureAdvisor’s basic users don’t need to worry about fees or minimum portfolio balances. However, FutureAdvisor Premium users need at least $10,000 in their accounts. The company also charges a management fee of 0.50%. That does not include investment expenses.
FutureAdvisor Premium is available to adults up to the age of 68. Once consumers reach 69, they have to go elsewhere. That’s because investment strategies change upon retirement.
Is FutureAdvisor the Right Choice?
Those who already have accounts at TD Ameritrade and Fidelity can greatly benefit from the premium service. However, those who have to move their accounts might not want to upgrade to premium.
All investors can benefit from the free tools, though. They receive helpful trading advice. They can then use the advice to place trades with their brokers.
on Future Advisor's secure website
Blooom is a robo-advisor firm that exclusively handles plans like 401(k), 403(b), 457s, 403(a) and thrift savings. Their singular focus allows them to be very good at managing employer-sponsored plans, and their automatic investment algorithms mean they’re also good for investors with a high risk tolerance and those who are satisfied as hands-off investors. Blooom is a fiduciary, which means it’s required by law to act in your best interest instead of their own.
There’s no minimum balance, and the first month is free; while Blooom doesn’t have annual fees or any charges on transfer, they do charge a $10 account maintenance fee, which can be an issue for investors with small balances just starting out. The more you have in your Blooom account, the cheaper that $10 fee ends up being. Accounts are evaluated every 90 days to see if a rebalancing is needed; this happens automatically with nothing needed from the investor.
Blooom’s best feature is free analysis of your existing 401(k) plan without any obligation. Once you’ve created an account on Blooom, you can link your 401(k), the robo-advisor will tell you not only how your 401(k) is doing, but how it can be doing better. If you’re not happy with what you see, you can sign up for Blooom’s management services and rebalancing. Even if you do sign up with Blooom, your retirement account stays right where it is; Blooom can manage it without moving it, making it a neat way to manage your retirement accounts.
Not everything about Blooom is rosy, however. As an online company, Blooom doesn’t offer phone support; all customer interactions are done via email and live chat. However, Blooom’s support personnel are made up of financial planners who can answer any of your questions – as long as you’re willing to type them – and they have 24-7 support, which is arguably better than phone support that’s only available during business hours.
Blooom’s investment strategy is also highly aggressive – too much so for some investors. The robo-advisor algorithms tend to recommend equities until the investor is about 20 years from retirement; this means that an investor could see some big losses on the front end. For many investors, that’s just part of the long-term strategy; for others, however, that could be a frightening occurrence. Blooom does, however, allow an investor to change their own allocation during signup if they prefer less risk.
For investors who either don’t know how to manage their employer-sponsored retirement plans – or would rather not have to – Blooom is an excellent option. For those who aren’t comfortable with the idea of high risk investments, plan to be more hands-on, or have smaller balances, Blooom might be worth passing up.
on Blooom's secure website
One of the biggest benefits of using a robo advisor is that they are very user-friendly. It is extremely easy for customers to set up a portfolio and begin investing their money. The process is mostly automated and doesn’t require the investor to personally manage or rebalance their funds. With the best robo advisors, you can set up your account by answering a number of questions online and inputting some information – a process which can take just a few minutes.
Another important benefit of robo investing is that they tend to have significantly lower fees then those charged by financial planners or advisors. That means that robo advisors are perfect for people who are more price conscious or have less money to invest and don’t want their returns to be eaten up by fees.
Another benefit of robo investing is that they often have very low minimum investment requirements. Most financial advisors or asset managers have a relatively high minimum investment since many charge a percentage of assets under management for their services and need to be paid enough to make it worth their time. In contrast, many robo advisers don't have a minimum investment or have a very low minimum of $500, $5,000, or $10,000. Some robo advisors actively encourage those with small portfolios to use their services by providing free services for anyone who has assets under a certain cut off.
Robo advisors make it easy to keep track of your investments. You are generally able to access your financial information and investments through an app in order to check your account balances or make investment moves. Anything that you can’t do on the app, you can easily do online.
Most robo advisors also work to minimize fees for their clients by investing in low cost index funds or exchange traded funds (ETFs). This is a great way to maximize investment returns while minimizing the costs of investing. Some of the best robo advisors also use their algorithms to automatically rebalance their clients’ portfolios on a regular basis and optimize their investments for tax purposes – which is a great benefit.
Drawbacks of Robo Advisors
While robo advisors are an attractive low-cost investment option, they aren’t perfect. One big problem is that they aren’t able to personalize your portfolio to your specific financial goals. While robo advisors allow you to state your financial goals and your risk tolerance, they don't help you build a customized financial plan in the same way as a financial planner would.
Many people believe that a robo advisor can replace a financial planner, but financial planners do more than just invest your money. They also help you manage your budget, pay off debt, optimize your taxes, and design your estate plan. Having a financial advisor can be critical for creating a financial plan that will work for you.
Robo advisors also are not very sophisticated investors. They often do not allow you to make more complex investment moves like buy individual stocks or sell options or futures. If you want to make these types of investments, you'll have to open up a separate brokerage account or potentially work with an investment advisor or financial planner.
Another drawback of robo investing is that they don't always have the capability to work with all types of accounts. While many robo advisors allow you to invest in 401(k)s and IRAs, not all of them do. Some allow you to invest in most types of retirement accounts, but don’t have the capacity to handle 529 plans. For that reason, they might not be the right fit for all of your financial needs.
Another drawback of robo advisors is that they are more costly than just buying exchange traded funds or index funds directly. With robo advisers, you pay both the fees on the exchange traded funds you invest in, as well as the robo advisor’s fee. While many robo advisors also rebalance your account on a regular basis, there might not be a huge difference in your investment returns between buying these funds yourself or using a robo advisor service.
Robo advisors are relatively cheap ways to invest your money, but they vary significantly in cost. Most robo advisers charge a percentage of your assets under management and this percentage changes depending on how much you have invested with their service. Many do not charge anything if you have a low amount invested.
In a study conducted by Value Penguin of 14 robo advisors, the average amount charged for accounts with balance of $5,000 was 0.25%, for accounts with balances of $10,000 the average was 0.26%, for accounts with over $50,000 the average was 0.36%, and for accounts with over $100,000 the average fee was 0.36%.
On top of these costs, you’ll also pay fees for the ETFs or the index funds your money is invested in. These fees can range from as low as 0.04% to closer to 1%.