You may need to hire a financial advisor for a number of different reasons. What you may not know is that financial services go beyond traditional in-person services. For instance, robo-advisors are a type of financial services provider that operates entirely online. Gaining in popularity in recent years, there are more than 100 robo-advisor services today.
Robo-advisors are particularly widespread among novice investors, as they have low account startup costs and generally require very little understanding of the market. All that’s required is answering a few questions about overall goals and risk tolerance before the algorithm chooses investments.
However, even more experienced investors can use robo-advisors to automate some of their more time-consuming processes.
What to Expect with a Robo-Advisor Service
While each robo-advisor is slightly different, they all tend to operate along the same lines. The algorithm used to invest money weighs personal preferences and goals with the performance of the market. Allocations are generally made to investments that have been vetted by qualified professionals, who in turn monitor market activity so that the portfolio get rebalanced automatically. Individuals can log into their accounts to track progress and make adjustments to the portfolio that they feel are necessary, especially as their financial goals change. Some of these services even provide access to certified financial planners who can discuss personal goals and offer relevant advice (though these consultations may involve additional fees).
Choosing between Robo-Advisors and Traditional Services
While robo-advisors are a good solution for some people, they will not meet the financial needs of all individuals. The ideal customers for robo-advisors are people with focused, singular investment goals and those who want automated rebalancing. Another attractive feature of robo-advisors is their low startup fees, which may be of interest to individuals who do not have much to invest (these investors may want to start with a robo-advisor and transition to something more complicated in the future).
Finally, many robo-advisors offer automatic tax-loss harvesting, which makes them appealing to more experienced investors.
On the other hand, though traditional advisors typically require higher fees, they also offer more dedicated attention and consistent availability. These benefits are necessary for people with complex financial goals, especially those undergoing estate planning or who need to figure out a concrete retirement roadmap. In-person advisors can give people a holistic view of their financial health and provide more personalized advice. This kind of guidance becomes more important the more money is invested or when a client is working toward multiple goals at once.
Some of the Most Trusted Robo-Advisors Available
Those who decide to go with a robo-advisor need to do as much due diligence as those who feel like they need more personalized services. With so many options available, it is important to understand the differences between services, as well as the fees involved. Furthermore, individuals who feel like they could benefit from intermittent in-person consultation should make sure they choose a service that offers such guidance.
Some of the most popular robo-advisor services include the following:
1. Betterment – One of the first robo-advisors, Betterment continues to attract a large number of clients. The fees depend on the amount of money managed, but they cap out at 0.4 percent for accounts over $100,000. With the higher fee, accounts have access to more services. People can usually get a year of free management with smaller accounts. Tax loss harvesting is only available for Plus Betterment customers.
2. Schwab Intelligent Portfolios – While investors need at least $5,000 to open an account with Schwab Intelligent Portfolios, they pay no advisory or management fees. All accounts automatically come with tax loss harvesting and automatic rebalancing, as well as other tools that investors can use to get the most from the account.
3. Wealthfront – With a low 0.25-percent fee, Wealthfront is known for its reliability. Accounts with more than $100,000 can access direct indexing, which is sort of like exchange-traded funds with great tax-loss harvesting benefits. Also, accounts with less than $5,000 are managed for free, which makes it a great choice for people who want to test the waters of robo-advisors.
4. Wealthsimple – Investors interested in social responsibility should check out Wealthsimple, which has investment options designed to create good in the community. Investors can indicate their values, such as environmental sustainability, and the company will invest in a way that aligns with those priorities. Each account comes with all available services, such as automatic rebalancing, dividend reinvestment, and access to human advisors, but the fees, at 0.5 percent, are higher than other options.
5. Personal Capital – Personal Capital is a great option for people who want all the bells and whistles. Each account comes with a great personal finance management platform and the service blurs the line between robo-advisor and traditional provider. The oversight of an actual human makes many people feel better about making investments through Personal Capital. At the same time, people pay for this additional service with an annual 0.89-percent fee on all portfolios valued at less than $1 million. Fees decrease for accounts with more than $1 million.