How to evaluate a robo-advisor

Evaluation Robot Advisor

The emergence of robot advisors, which have become increasingly popular in recent years, has upended the fields of financial planning and wealth management. If you are satisfied with consultations that are mainly distributed digitally, then this course may be a perfect fit for your needs.

But how do you evaluate and decide which robo-advisor to use? Here are some guidelines on how we evaluate robo-advisors. Check out our robo-advisor award winners and in-depth reviews.

Key points

  • With so many robo-advisors available and competing with each other, what should you look for when choosing the best advisor for you?
  • First, look at the services provided. Many robo-advisors now receive standard tax loss collection and automatic rebalancing at no additional cost.
  • Second, determine the amount of manual intervention or contact you like. Do you want to automate everything or do you like someone to talk regularly?
  • Finally, evaluate the costs and fees charged by the robo-advisor you are interested in and weigh them against the additional features and benefits you might like.

Identify Robo Advisor Service

The first step is to determine what type of financial advice and services you need. Most robo-advisors manage your funds in one form or another. There are companies like LearnVest that focus on budgeting and financial planning and provide real-time help over the phone. Although Learnvest may make investment recommendations, the company does not actually invest your funds.

However, in most cases, portfolio management and asset allocation are the main services provided by robo-advisors. They are implemented by using algorithms based on modern portfolio theory, usually exchange-traded funds (ETFs). Some companies, such as Folio Investing And M1 Finance provides a pre-set stock or ETF portfolio, customers can purchase with just one click. Others guide clients through the goal setting process and recommend investment portfolios that suit their timeline and risk appetite.

Above this basic service level, some robo-advisors provide tax loss harvesting services for investment portfolios that do not have tax incentives in certain areas, such as IRA. Many people now offer standard tax optimization strategies, but remember that tax loss gains are not always beneficial-it all depends on your tax situation. Some robo-advisors that provide tax loss collection will only do so if you opt-in, so please read the specifications carefully.

Some robo-advisors are further specialized: For example, Rebalance IRA focuses on retirement accounts, while Blooom optimizes 401(k) investments. Personal Capital can manage all your accounts on a consolidated basis, with the goal of a slightly more upscale market; to participate in its management services, investors need at least $100,000.

How much will it cost?

Just as there are differences in the services provided, so do the fees charged. They usually account for 0.15% to 0.50% of assets under management. Some consultants also charge a one-time setup fee.

Learning vest The cost of the initial review ranges from US$89 to US$399, followed by US$19 per month.Personal capital The cost is 0.49% to 0.89% of the investment amount.Acorns charges $1 per month,Betterment and Wealthfront and several other companies charge a simple 0.25% annual fee based on the assets under management.

Keep in mind that the expense ratio of the underlying ETF or mutual fund invested by the robo-advisor will also apply. There may also be transaction costs in trading various investments. In addition, the robo-advisor generates income from uninvested cash in your account, while paying you very little interest.

Can I talk to someone?

The robo-advisor started with the idea that minimal human involvement can reduce costs, people can set it up and forget it, and let the algorithm run. However, some investors still like to talk to professionals from time to time. Betterment is the first robot advisor to introduce actual financial advisors to help solve problems and give investors peace of mind. Now, several other robotic advisors have followed suit, and many even assign personalized advisors to users. Please keep in mind that these professionals need to pay, so robo-advisors equipped with financial advisors may charge higher investment management fees or one-time consulting fees.

In addition, it should be noted that many financial advisors on these platforms are not capable of making direct investment changes or recommendations. Instead, they are there to answer questions, provide general financial advice, and control user emotions.

Robo-advisors and traditional financial services companies

The major players in the financial services industry have not lost the popularity of robo-advisors. Veteran participants in the autonomous trading industry have launched their own robo-advisors to attract customers who wish to put some assets on hold for passive management. These robo-advisors are part of a larger product that includes banking and autonomous brokerage services:

These companies have money to invest and time for these services to grow and develop. In addition, as your needs change, or if you want a more personalized service, you will be able to seamlessly transition to other services provided by these companies.

Bottom line

If you choose to use a robo-advisor, as an investor, you still need to consider which one best suits your needs. Factors to consider include the type of advice and services provided by the robo-advisor, the level of human interaction provided (if any), the minimum investment required, and any fees or expenses you will incur. The growing interest of major financial services companies in this area is for further consideration.


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