One of the latest trends in the financial industry is the use of robo-advisors to provide financial services. These robo-advisors use algorithms to do a variety of tasks traditionally done by humans, including allocating assets, optimizing portfolios, and assessing client risk. These platforms have appealed to a wide audience of retail investors because they provide traditional services at a fraction of the cost. While there are over 100 robo-advisor services on the market, some of the most popular are Betterment, Personal Capital, and Schwab Intelligent Portfolios. Below is a description of each to help you determine the best platform for your investment needs.
Betterment is the largest robo-advisor platform on the market with over $10 billion in assets being managed. This platform takes a passive approach to investing through Apex Clearing Corporation. Betterment has no minimum account balance and only charges 0.25% annually for its standard plan. Why choose Betterment? It is great for new investors due to its ease of use and low cost. It also offers human services, providing unlimited calls to financial advisors with its Premium plan. Based on Consumer Affairs reports, Betterment has only a 2.5 out of 5 star rating from users. However, it is highly recommended by industry reports and articles.
Personal Capital employs the modern portfolio theory investing approach to their client’s portfolios. The platform’s fees range from 0.49% - 0.89%. It’s higher pricing accounts for the all-in-one nature of this product, providing a variety of financial planning tools and access to human advisors. It has three levels of accounts designed to meet the needs of different investors. The company currently
Schwab Intelligent Portfolios is particularly interesting as they advertise a zero fee structure, as the company earns money based on management fees from Schwab ETFs and other third party ETFs. However, Schwab’s zero fee structure hasn’t monopolized the market yet since they require a minimum balance of $5,000.
So, which platform is best? It really depends on the investor. For young people, Betterment is arguably the best platform for those who have enough risk tolerance to not need their hands held because it has the lowest costs and no minimum account balance. However, more established investors may prefer a platform like Personal Capital or Wealth Front for its more comprehensive services.
While robo-advisors are extremely convenient, allowing retail investors to trade and make informed decisions quickly and by themselves, these products are limited. There are many investment strategies that are beyond the capabilities of robo-advisors, like selling call options. As a result, it appears robo-advisors won’t take over all aspects of human financial advisors’ jobs, or at least not yet.