The Best Robo Advisors to Help You Manage Your Finances

AI is the next big thing, and it has already made it's way to investing. Robo advisors are consistently helping clients grow their portfolio.

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The best robo advisor is a mix of finding a price point that works for you, finding the best performance, and the platform that can give you what you need to confidently invest.

Quick Look: The Best Robo Advisors

What is a Robo Advisor?

Financial advisors can be expensive. Although an average annual fee of 1%-2% doesn’t sound like much, it adds up. Given that the stock market has generated a return of around 6.5% after inflation, a 1%-2% fee amounts to 15%-30% of the total return.

For many who meet their financial advisors just a few hours a year and have considerable financial portfolios, the total costs of having a financial advisor can get pretty outrageous. For many people who see their financial advisors once, the cost can amount to $10,000-$50,000 per hour or more when all is said and done.

Often times financial advisors don’t actually help a client beat the market either.

Study after study consistently shows that active investing fails to beat passive investing, especially after fees. When taking in account the lack of performance and the high fees, various fintech companies formed robo advisors, a complex computer algorithm that does most of the important things that financial advisers do, only for a lot less.

At its core, robo advisors help construct, adjust, manage, and optimize a portfolio.

For a person 20 years away from retirement, the robo advisor might recommend more risky assets such as stocks in a portfolio, while for a person who is just a few years away from retiring, a robo advisor might suggest more conservative options such as a bond-heavy portfolio.

Why use Robo Advisors?

For someone who is considering switching from a financial advisor to robo advisor, or just starting to invest, here are some reasons to make the leap.

Multitude of services

Robo advisors help their clients determine how much money to invest to realize their financial goals in a way that is in line with their risk appetite.

To that end, robo advisors help optimize asset allocation, automate tax-loss harvesting and rebalance your portfolio when the market changes. Many also help clients create plans for retirement and manage 401ks.

For example, the robo advisor Betterment also automatically rebalance a portfolio automatically without any additional commission cost to the client.

Lower minimums

Robo advisors have a big advantage in that they have lower minimums than financial advisors, which often require their clients to invest $100,000 or more before dispensing advice. By having minimums as low as $0, robo advisors dispense previously unaffordable retirement planning and portfolio balancing advice to a broader selection of people.

Lower fees

Robo advisors generally cost 0.25%-0.5% of the portfolio, versus a financial adviser that generally charges 1-2%. Over time, the lower fees add up, and give users of robo advisors a greater share of investment gains, which could amount to hundreds of thousands of dollars for many individuals. These rates don’t necessarily include ETF or mutual fund fees, however.

Fewer conflicts of interest

Often times the interest of financial advisers doesn’t necessarily match the interest of their clients. A financial adviser might make more money, for example, if he steers his client into high fee products that don’t fit the client’s best goals.

Given that robo advisors are algorithms that generally look for the lowest cost solution to fit a client’s needs, there is less conflict of interest.

Always available

As these tools are software, robo advisors will always be available as long as a client has access to the internet. Access to a financial adviser is harder to access as meeting a financial adviser will require scheduling and fitting the appointment in the financial adviser’s busy schedule.

Tax-loss harvesting

Robo advisors also offer clients an advanced feature, tax-loss harvesting, which is the practice of divesting a security at a loss, i.e. harvesting, to offset gains elsewhere in a portfolio. The divested security is then replaced by a similar security, helping a client maintain the optimal asset allocation by keeping a portfolio’s diversification. The realized losses on divestments could also potentially reduce an investor’s ordinary taxable income by as much as $3,000.

Hybrid robo advisors

For certain people, robo advisors are just not enough, and they require more of a hands-on human touch. To solve that problem, many financial firms offer hybrid robo-advisors, that have the added functionality of talking with regular human financial advisers through the phone.

Those financial advisers could potentially help clients with complex things such as estate planning.

What to Look for in a Robo Advisor

We ranked robo advisors on multiple criteria, looking at over 30 different companies, spending over 100 hours crunching the data and talking to experts.

Here is what we looked at:

  1. Best overall quality – Some simply outpaced others in all categories.
  2. Account minimums – The lower the better.
  3. Fees charged – We’re a big fan of little to no fees.
  4. Assets under management – The more AUM, the more stable the company is and the more you can trust it.
  5. Features – The more features such as direct indexing, tax-loss harvesting, human advisors alongside etc, the better.
  6. Customer service – Support is vital when it comes to your investments.

Our Top Picks for the Best Robo Advisors

Taking our listed criteria into consideration, check out our top pics. We compare the best options side-by-side to help you find the right robo advisor for you.

Best Overall: Betterment and Wealthfront

For an overall best robo advisor, Betterment and Wealthfront consistently scored well in all categories of our review.

Best For
  • Passive investors
  • Lower fees
  • Beginning investors
  • Investors who don't want to manage money on their own
Best For
  • Intermediate investors
  • Retired investors
  • College students

Betterment and Wealthfront have made some major waves in the financial world. By offering lower commissions, the ease of entry for users to start investing continuously learn better strategies has brought in a whole new demographic of investors.

Best For Stability: Charles Schwab and Vanguard

These 2 institutions are majors brands in the finance world, offering an assortment of products, and managing billions of dollars collectively.

Best For
  • Set-it-and-forget it investors
  • Saving on taxes
  • Complex financial planning for retirement
Best For
  • Beginner investors
  • Advanced traders
  • Investors seeking commission-free etfs

Rising Stars: WiseBanyan and Personal Capital

Fees are a part of investing. Saving money isn’t always the only reason to choose an advisor, but if you are looking for low fees and a more diverse set of features, these two options are your best bet.

Best For
  • Brand-new investors
  • Those who are comfortable managing their finances solely online
  • Great technology
Best For
  • High-value investors
  • Anyone who wants to budget, plan for retirement and invest from a single platform
  • Hands-off investors who want assistance from financial professionals

Future of Robo Advisors

Due to their value proposition, robo advisors have grown very quickly.

In 2008, Betterment, the first robo advisor, came to the scene with a portfolio balancing feature. Although other companies had offered portfolio balancing software at the time, those companies marketed only to existing financial advisers, not the general public like Betterment did. In 2015, the global assets under management by robo advisors came in at around $100 billion, and in 2016, the amount approximately doubled.

Due to the increased amount of interest, more brand-name financial companies, such as Vanguard and Schwab, have jumped on the bandwagon recently, and even elites such as Goldman Sachs and Morgan Stanley are working on launching their own robo advisor solutions. In terms of growth, the future looks rosy as many analysts estimate total AUM managed by robo advisors to hit $2 trillion or more by the end of this decade.

Impacts on AI

The introduction of these advisors has stimulated more demand for artificial intelligence in the hopes that AI software will help personalize financial choices better. Robo advisors have also indirectly helped AI by promoting investment in various companies that do AI such as Facebook, Google, and Microsoft, etc.

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