Technology is taking over the world of investing, and has given rise to a concept of “robo-advisors.” In this article below, we included a side by side breakdown of robo-advisor fees.
Robo-advisors offer financial guidance without the need to hire an actual financial advisor, which can require assets of $500,000 or more. This means people with lower capital to invest can invest their money in new ways and without high fees.
Robo-advisors are quickly becoming the preferred investment method for tech-savvy consumers and others looking for tailored investments portfolios designed to meet their objectives but without high fees.
By some estimates, robo-advisors have more than $401.9 trillion under management, an amount that is expected to grow by more than 37.5 percent annually in the next four years.
- Robo-Advisor Fees Comparison
- What is a Robo-Advisor
- Benefits of Using Robo-Advisors
- Risks of Using a Robo-Advisor
- Bottom Line
Robo-Advisor Fees Comparison
Most robo-advisors charge advisory fees, or management fees, of from 0.25 percent to 0.50 percent of account worth. On the high-end, the advisory fees may go up to 0.75 percent of account value. Some robo-advisors don’t charge any advisor fees, but they may offer optional services and charge for those.
Here is a comparison list of the fees charged by 10 of the popular robo-advisors.
- Betterment charges 0.25 percent annually for the basic “Digital” account with no minimum balance, and 0.40 percent for the “Premium” account for accounts with a minimum balance of $100,000.
- Wealthfront charges 0.25 percent advisory fee annually for the traditional account, excluding fees charged by the ETFs and mutual funds themselves.
- Charles Schwab Intelligent Portfolios does not charge an advisory fee, but the fund expense fees do range from 0.03 percent to 0.65 percent.
- Fidelity Go charges a 0.35 percent advisory fee, but you may receive a credit discount called a “variable fee credit” if Fidelity is paid fund expenses. There is no minimum balance required.
- TD Ameritrade Essential Portfolios charges a 0.30 percent annual advisory fee, however, the minimum balance to deposit is $5,000.00.
- Wells Fargo Intuitive Investor charges an annual advisory fee of 0.50 percent, with a 20 percent discount for customers who link a Portfolio by Wells Fargo account. The minimum balance to open the account is $10,000.00.
- Acorns charges a $1 per month fee for the basic “Acorns” account, a $2 per month fee for the “Acorns + Acorns Later” account, a $3 per month fee for the “Acorns + Acorns Later + Acorns Spend” account. College students will get their fees waived for the basic “Acorns” account. However, you should note that if your balance is above $1 million your fee structure will change.
- SoFi Wealth is waiving management fees in 2018. Starting in 2019, SoFi wealth will charge a 0.25 percent management fee for balances over $10,000. The minimum balance to open the account is $100.00.
- Morgan Stanley Access Investing charges a 0.35 percent annual fee, which is charged quarterly. The minimum balance to open the account is $5,000.
- Citizens Bank SpeciFi (which is sub-advised by SigFig Wealth Managerment) charges a 0.50 percent annual fee. The minimum balance to open the account is $5,000.
- SigFig Managed Account charges a 0.25 percent management fee for balances over $10,000. SigFig does not charge a fee on balances up to $10,000. For example, if you deposit $25,000 into SigFig you would only be charged the 0.25 percent fee on $15,000 ($25,000 – $10,000 = $15,000).
Additionally, there may be fees (ex. 0.05 percent to 0.50 percent) charged by the ETFs and mutual funds themselves. Some robo-advisors may refund you for the fees charged by these funds, most will pass along these fees.
Other robo-advisors may not charge a fee to people with under a certain amount of money in their account. For example, WiseBanyan, Wealthfront, and SigFig don’t charge fees on account balances of $5,000 or less. Some robo-advisors may charge a flat fee instead of basing fees on account value.
On top of advisory fees, other fees can sometimes include fees to make trades, transaction fees and fees for account maintenance, but most robo-advisors don’t charge these.
What is a Robo-Advisor?
Robo-advisors are software that automatically build portfolios for users. These sophisticated software solutions will rebalance portfolios as necessary on an ongoing basis to help a portfolio get back to its target allocation. A lot of robo-advisor platforms also do tax-loss harvesting, which are automated trades that can reduce how much you pay in taxes.
A robo-advisor is a good solution for someone who wants the advantages of a financial advisor but without the costs. These financial solutions are popular, especially among younger or newer investors, because they’re convenient and inexpensive. You can set up an account quickly. Most let you check your account and portfolio through the use of a mobile phone app. The minimums to invest are often very small, and fees are low.
Benefits of Using Robo-Advisors
One of the biggest benefits of a robo-advisor is the fact that investors don’t have to worry about the potential they could make very expensive mistakes. If you’re a DIY investor, it’s easy to lose your investment quickly.
Of course, using a robo-advisor doesn’t guarantee that you won’t lose money, but these software solutions have advanced algorithms that were previously only available through a financial advisor. Since everything is automated, investors can also take a completely passive, hands-off approach to investing.
Of course, other benefits are the low fees and the low account minimums.
Risks of Using a Robo-Advisor
One risk of using a robo-advisor is that you’re not going to make the kind of returns you would if you invested in a traditional way. You can set up your account so that it has more risk and the potential for more returns, but overall it can be harder with these highly diversified portfolios and automated features to see major returns.
Also, while robo-advisors often let you choose your investing goals, it’s not necessarily as tailored and as personalized as investment advice from a human professional. Make sure you understand all the fees you’ll be charged, although most top robo-advisors are transparent with their fee structure.
Overall, robo-investors can be an ideal option for someone who is new to investing and doesn’t have a lot of knowledge to make their own decisions. Robo-advisors are good for people who don’t have a lot of money to invest and who want a solid, passive strategy.