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Robo-advisors are incredibly popular these days, and it seems like every fintech company is rolling one out. It’s not too surprising: robo-advisors have a number of advantages. That includes low fees, diversification, and (very) little maintenance needed.
Still, having so many choices can lead to paralysis of choice. With so many options, how do you choose a robo-advisor? In this post, we’ll go through the things you should think about, as well as offer a few recommendations.
In reality, every robo-advisor has fees that would be unthinkable for a human financial advisor. Because the fees are so low, the differences can be negligible.
But the differences in what each offers in terms of features can be quite similar, too. When push comes to shove, if the only real difference is 0.10% worth of management fees, perhaps that can be a deciding factor.
In our post on robo-advisor fees, we took a closer look at robo-advisor fees across the industry. We found that the average management fee was about 0.28% across robo-advisors. You can use that as a baseline. If you are considering a robo-advisor with a management fee lower than 0.28%, it’s lower than average.
One of the most common reasons to roll over a 401(k) into an IRA is having more investment options. In particular, that means having investment options that meet most or all of the following:
- Strong performance
- Low expense ratios
- Socially-responsible investment options
- More stocks and funds to choose from
Some robo-advisors have mainly their own, propriety exchange-traded funds (ETFs). Others simply use Vanguard funds. In the latter case, the funds have a long track record, so you don’t need to worry about them. For those that have their own funds, you’ll have to research them and find out whether they are a good place to invest your money.
These are just a few of the things that might be important when selecting your investments. Once you determine your investment goals, you need real investments that align with them. Whether those goals are a certain level of performance, keeping with your values, or something else, this is an important consideration. After all, you may have this money invested for years (or even decades).
What Features Are Offered?
Sure, a lot of robo-advisors have similar features. They’ll invest your money in a basket of ETFs and many have automatic rebalancing to keep your allocation in line with your goals. But some also have unique features that can improve your returns or just improve the overall experience.
For example, Betterment’s tax-loss harvesting (TLH+) can help you maximize your returns by minimizing your tax bill. Or there are M1 Finance pies to make it a whole lot easier to manage a complex portfolio on your own. Others, like SoFi Invest, give you access to human financial advisors for free.
M1 Finance also offers several of pre-built pies to meet different investing goals, from risk tolerance to niche markets to socially-responsible portfolios.
Who is available to help when you are having issues? Hopefully someone helpful, especially if you are a newer investor. But beyond that, is help available when you need it? Is it accessible in your preferred line of communication? Most robo-advisors don’t have 24/7 support, and they don’t all have every line of communication. Thus, you’ll want to check what is offered before committing.
One thing to keep in mind is fees can play a role. In other words, robo-advisors with the lowest fees can sometimes have slimmer support options, too. It makes sense, but it’s something to keep in mind.
So if you are a newer investor, or you simply don’t want to have to figure everything out on your own, it may be important to have strong customer service. Make sure whichever robo-advisor you are considering meets your needs in that way.
When you access your robo-advisor’s website, do you want to run away before you even fix the thing you were trying to address? User experience may not seem like the most important thing, but it’s actually critical.
Consider this: in personal finance and investing Facebook groups, people often say they prefer Fidelity to Vanguard in terms of online brokerages. Why? Because Fidelity’s website is easier to navigate. Even though people generally feel positively about Vanguard, they prefer Fidelity simply because it makes it easier to get things done.
Of course, the only way to know for sure which user experience you prefer is to try it yourself. But there are certainly other things you can do, such as checking screenshots on your app store of choice or watch videos.
In some cases, such as with M1 Finance and Betterment, you can create an account and even a portfolio without having to pay any fees. And there are no minimums for either of them, so you are free to check them out before you fully commit.
The Bottom Line
Choosing the right robo-advisor can seem overwhelming. But it doesn’t have to be. If you know what to evaluate and which features are important to you, it’s easier than you might think.
For instance, here is a comparison of some of the most popular robo-advisors:
|Robo-Advisor||Best For||Min. Investment||Fees||Benefits|
|Betterment||Hands-off investing||$0||0.25% or 0.40%||Tax-loss harvesting, dynamic rbalancing|
|M1 Finance||Customizable portfolios||$100||$0 or $125/yr.||Pie-based investing|
|SoFi Automated Investing||Low-cost investing||$1||0.00%||No expense ratios|
|Acorns||Everyday saving||$5||$1, $3, or $5/mo.||Invest your change|
|Vanguard Digital Advisor||Low-cost investing||$3,000||0.15%||Low management fees|
|Wealthfront||Financial planning||$500||0.25%||Low management fees|
|Ellevest||Investing for women||$0||$1, $5, or $9/mo.||Financial coaching, impact investing|
|Schwab Intelligent Portfolios||Risk-averse investors||$5,000||0.00%||No management fees|
|SigFig||High-ROI investing||$2,000||0.00% first $10,000, then 0.25%||Strong portfolio performance|
|Axos Invest||Low minimum for premium features||$500||0.24%||Selective portfolios: remove ETFs you don’t want|
Meeting your investment goals, a good user experience and strong customer support are among the things to look for. And, of course, fees. SoFi Invest, for example, has a new robo-advisor with no management fees. It all depends upon what is most important to you.
If you are new to investing and want a solid robo-advisor, we recommend Betterment. It invests your money in a strong mix of ETFs, has excellent customer support, and features that set it apart. It even has value-based investing these days. So if you just want to get started with a great robo-advisor, give Betterment a try.