The Ultimate Guide To US Robo Advisors

US Robo Advisors

In this post, you will find an overview of the best US Robo Advisors. Whether you are a newbie or a seasoned investor, this guide can help you make an informed decision as to which robo-advisor is best suited for you and your investment needs. (In case you are a UK-based investor, please check The Complete Guide to UK Robo Advisors for an analysis of all UK-based robo-advisors instead.)

What are Robo-Advisors and how do they work?

Robo-advisors are digital investment services that offer fully automated, algorithm-based portfolio management services without the need for human financial advisors. Robo-advisors typically charge considerably lower fees than most traditional investment management firms, which makes them an excellent alternative to expensive mutual funds.

The rise in of US robo advisors in recent years has been impressive. The industry has attracted over $50 billion in assets under management by April this year. The low fee structure and easy-of-use have turned robo-advisors into a popular investment service, especially for novice investors.

Most robo-advisors work in the same way. You simply register, fill out a risk-assessment questionnaire, which generates your risk profile, and then you are presented with a set of different portfolios you can choose from. Once you have chosen your portfolio, you deposit your funds and the portfolio will then be created for you by the robo-advice service.

Most robo-advisors use Modern Portfolio Theory (MPT) to create your investment portfolios. Modern Portfolio Theory is a financial theory that aims to maximize expected return given a certain amount of portfolio risk by selecting the right proportions of assets within the portfolio.

The speed and ease of setting up your investment portfolio is a big benefit of using robo-advisors versus human financial advisors.

The Guide To US Robo Advisors

Betterment

BettermentBetterment has managed to emerge as one of the leading players in the robo-advice industry with an estimated $6 billion in assets under management. For less than $10,000, the annual fee is as little as 0.35% with $100 a month in automatic deposits, or $3 per month. Accounts with at least $100,000 under management are charged only 0.15% of assets under management.

Betterment invests ETF portfolios composed of up to 12 different asset classes, depending on the investor’s risk tolerance and goals. Betterment automatically rebalances your portfolio when cash flows in or out (in the form of dividends, contributions or withdrawals) or when the allocation to a particular asset class drifts more than 3% from its target level. The company’s algorithms check daily for the need to rebalance and it purchases fractional shares so there is no uninvested cash in your portfolio.

ElleVest

ElleVestElleVest was launched in 2016 by former Citigroup chief finance officer, Sallie Krawcheck. It is the first digital investment service targeted specifically at women. ElleVest’s investment approach differs from the majority of its robo-advisor counterparts as it is not based on a pure risk assessment approach but instead bases the portfolio composition on investment goals.

ElleVest has no minimum balance but charges an annual fee of 0.50% on funds under management. The annual rate, however, does not include fees for purchasing ETFs for clients’ portfolios. Fees in an Ellevest portfolio range from 0.10% to 0.15% per year. Other services can range from 0.15% to 0.80%.

Taking into consideration a user’s age, salary, and geographic location, ElleVest’s platform creates a customized portfolio with a recommended investment horizon and monthly contributions. Additionally, users can select single or multiple goals and change them as needed. Included in the goal-based focus is a percentage likelihood of meeting that goal—70% is the minimum. Ellevest’s website claims that this greater likelihood of meeting your goals beats the 50% average of most financial advisors.

Future Advisor

Future AdvisorFuture Advisor was established in 2012 and holds around $700 million in assets under management. FutureAdvisor’s free service does not have a minimum balance but premium accounts (with a minimum of $10,000) are charged a fee to cater for requirements such as tax-loss harvesting and a higher number of transactions. What differentiates Future Advisor from other robo-advisors is that it also gives its users access to human financial advisors that offer investment advice.

Also, the service offers direct management of college savings plans and 401(k)s. A 0.5% annual fee is charged on assets under management. It is also worth noting that FutureAdvisor does not serve individuals who are older than 68.

All in all, it’s a great service for college savers, DIY investors who want a checkup from the pros, and investors who have accounts at Fidelity or TD Ameritrade and don’t want to move them.

Hedgeable

HedgeableEstablished in 2009, Hedgeable stands out among US robo advisors as it is out to democratize sophisticated investing by enabling the public to access the techniques of hedge funds, which retail investors do not have access to.  However, they generally focus on asset classes that may not pose a major investment risk to clients (and typically avoids derivatives or complex instruments to hedge portfolios).

Hedgeable tailors its clients’ portfolios to take into account their risk appetite, net worth, as well as investment horizon. The fee payable range from 0.75% (for accounts valued at $0-$49,000) and 0.30% for accounts valued at over $1 million.

Hedgeable is unique in the world of robo advisors because they are an active asset management firm, which means they believe they can produce returns that beat the market, instead of a passive asset management firm which prefer to just track the market with minimal fees like most other robo-advisor services.

Motif Investing

Motif InvestingMotif Investing provides you with an opportunity to invest on your own at reasonable terms. “Motifs” are groups of up to 30 securities that are arranged around a theme, like small-cap stocks or companies involved with elder care. The brokerage also offers a selection of fixed-income motifs, like Corporate Bonds and California Munis. Typically, a client invests in clusters of investments that share similar features.

If one of your individual securities tanks later, you can sell it, and replace it with something else, for $4.95 per trade. The firm also rebalances their motifs quarterly; updates run $9.95 each.

In addition, Motif is currently offering investors the chance to receive $150 when you sign up for an account with them. New accounts funded with at least $2,000 are eligible, and you make more money by making more trades. One trade within the first 45 days of opening the account gets you $50, three trades gets you $75, and five trades will get you $150.

That being said, Motif’s unique structure allows you to cash in on hot, money-making trends as an exciting supplement to your core investments. It even allows you to invest in the legal marijuana industry.

Personal Capital

Personal CapitalPersonal Capital was established in 2011 and is more oriented towards a personal approach as opposed to many other robo-advisors. Other US robo advisors are known to follow the algorithm approach to provide recommendations for the class of investments that fit its clients’ profiles.

Personal Capital customers can access the personal finance management dashboard for free or can alternatively consult a registered investment advisor for more for tailored endorsements and trade executions.

The basic account minimum a client should have is $25,000. The robo-advisor charges an all-encompassing charge of between 0.49% and 0.89% annually of assets under management. Those with less than $1 million pay 0.89% but the annual charges decline gradually toward 0.49% with assets over $10 million. Also, clients with balances of $100,000 or more have access to individual securities and there is automatic rebalancing which is free on all paid accounts. Personal Capital clients with balances of $25,000 to $100,000 are invested in a diversified portfolio of ETFs that carry expense ratios with a weighted average of 0.09%.

In addition, The Company’s advisory service invests clients with balances of $100,000 or more in ETFs and individual securities through a process it calls Smart Indexing.

Schwab Intelligent Portfolios

SchwabCharles Schwab launched Schwab Intelligent Portfolios in March 2015. What you need is a minimum amount of $5,000 and you have access to an ETF portfolio with up to 20 asset classes. Investors are taken through a 12-step questionnaire to determine their investment goals, risk profile and time factor. Expense ratios on individual ETFs range from 0.04% to 0.48% and the blended weighted average on portfolios range from 0.12% to 0.25%. There is automatic rebalancing with a $5,000 minimum balance and Schwab provides 24/7 customer support via phone and online chat.

Schwab stands out in that it doesn’t charge advisory fees, account service fees or commissions. Also, Schwab offers an Intelligent Portfolios’ Goal Tracker feature which provides a daily snapshot of how an investor’s portfolio is tracking against a savings or income goal. Goal Tracker uses sophisticated Monte Carlo simulations (which calculate multiple random return scenarios) then reports if, at your current rate of savings and returns, you are “On Target” (which Schwab defines as having a better than 50% chance of reaching your savings goal), “At Risk” (between a 25% and 50% chance) or “Off Target” (less than a 25% chance of hitting your goal). Goal Tracker is a particularly valuable monitoring tool for investors who are past the wealth building stage and are currently (or will soon be) drawing income.

SigFig

SigFigSigFig, which started as Wikinvest in 2006, is an online portfolio manager with a focus on transparency and accessibility. This robo-advisor pools its clients’ investment accounts into a single dashboard then analyses the whole portfolio to create a customized investment strategy for them. Using patent-pending algorithms, this application assesses your holdings according to diversification, performance, and cost, and determines what potential gains you could make by trading. Users can also pay to have their account managed online for $10 per month.

Managed accounts automatically diversify and optimize portfolios for consumers who don’t have the time to manage their portfolios themselves or the assets to hire an in-person investment advisor. Clients have access to round the clock portfolio monitoring, tax-efficient investment plans, dividend re-investment and automatic rebalancing.

The minimum investable amount is $2,000. Investors pay a fee of between 0.25% and 0.5% annually for accounts of over $2,000 but the first $10,000 is managed for free and no transaction charges are levied.

Vanguard Personal Advisor Services

VanguardEstablished in 1975, Vanguard is regarded as the pioneer of low-cost investing. Two years ago Vanguard launched its own robo-advisor called Vanguard Personal Advisor Services.  This robo-advisor is popular with its focus on index and exchange-traded funds. It is, however, inclined more to long-term retirement clients as opposed to the stock traders (who trade on a regular basis daily) and it does not offer a trading platform.

The minimum deposit is $50,000 and the annual fee deducted is 0.3%. With approximately $3 trillion dollars in assets under management, Vanguard is the largest mutual fund manager in the world and the second largest provider of exchange-traded funds (ETFs).

Vanguard Personal Advisor Services brings these low-cost investment choices (ETFs and Index Tracker Funds) to clients that want a personally-managed investment portfolio. For new clients, a Vanguard advisor will develop a financial plan that includes life goals, review of current investments, and determination of future income needs. The financial plan will be customized to the client’s unique financial situation.

Wealthfront

WealthFrontWealthfront was one of the first US robo advisors and was established in 2011. It currently holds around $2.5 billion in assets under management. Wealthfront manages investors’ portfolios using ETFs representing a range of 11 diverse asset classes. The ETF expense ratio averages at 0.12%, while automatic rebalancing is free on all accounts. The minimum investable amount is $500 but the first $10,000 is managed at no cost. Amounts above the initial $10,000 are charged an annual fee of 0.25%. However, clients do not pay transaction fees but do pay expense ratios on their portfolios.

Wealthfront also offers daily tax-loss harvesting on all taxable accounts. For accounts with balances over $100,000, it offers a service called tax-optimized direct indexing, which is essentially beefed up version of tax-loss harvesting. Furthermore, Wealthfront launched a free Portfolio review tool which is available to all investors. The tool evaluates an investor’s portfolio based on fees, taxes, cash drag and diversifications, returning a customized report that can help users optimize their investment strategy and lower fees.

WiseBanyan

WiseBayanWiseBanyan has carved a niche for itself by offering totally free wealth management services without account balance requirements. There’s no minimum to become a client, so you can start investing today. WiseBanyan also goes a step further by offering a personalized touch by pairing each of their clients with a personal financial expert. They take your money and invest it in a portfolio of ETFs while managing the dividends and rebalancing according to your choices.

It is ideal for greenhorn investors and those with low balances who are on the look-out for free financial advisory. As you’re going through the sign-up process, you can choose from several different types of investing accounts including personal investments, Roth IRA, SEP IRA and Traditional IRAs. WiseBanyan, however, makes money from paid add-on features such as tax-loss harvesting, which is typical of many robo-advisors. For the tax-loss, WiseBanyan harvests 0.25% of assets under management but the amount is capped at $20 per month.

*If you are a US-based robo-advisor and want to be added to this list, please contact me at alex@smartmoneysmartliving.com and I will add you.

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Alex founded SmartMoneySmartLiving.com in 2015 to empower millennials to take control of their financial future and guide them along their journey towards financial freedom.