Which Robo Adviser Is Right for You?

We sift through the pros and cons of the growing number of low-cost digital advisers.

(Image credit: Illustration by Otto Steininger)

Robo advisers, those automated investment advice services offered by banks, brokerages and other financial firms, have proliferated to the point that choosing one can be overwhelming. All robos promise low-cost, computer-driven investment management geared to your goals. But although they share similar characteristics, they are not alike. Some digital investment services are better for investors who are just starting out. A few are suitable only for the most conservative investors. Others are geared only for investors saving in retirement plans.

There’s no management fee and no minimum to open an account at Axos Invest (opens in new tab) (formerly WiseBanyan) or SoFi Invest (opens in new tab), which makes them appealing to investors with small balances. Betterment Digital (opens in new tab) and Fidelity Go (opens in new tab) don’t have a minimum to open an account, either. But you will pay an annual management fee based on the amount of money you have in your account. Betterment Digital charges 0.25% a year; Fidelity, 0.35%.

Retired investors making withdrawals

Most robos are focused on accumulating wealth, but some help retired investors sort out their required minimum distributions from tax-advantaged accounts. Personal Capital, which calls for a $100,000 minimum to open an account, will set up paycheck-like withdrawals from your IRA to your bank account and withhold federal and state income taxes, too. Personal Capital gets extra credit for its Smart Withdrawal tool. It allows customers to explore how different withdrawals from tax-advantaged and taxable accounts might affect their assets over time. Betterment’s retired clients can set up regular distributions as well, but only federal income tax is withheld (you’re on your own for state tax withholding). Finally, Merrill Edge’s Guided Investing (opens in new tab) and T. Rowe Price’s ActivePlus Portfolios (opens in new tab) can arrange one-time distributions from an IRA. Both firms say a feature that allows regular automated withdrawals is coming.

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Savers who want 401(k) help

Blooom (opens in new tab), quirky spelling and all, can take the reins of your 401(k) account and manage it for you. It connects to your employer-sponsored retirement account—403(b)s and federal Thrift Savings Plans are eligible, too—and builds a well-diversified portfolio of the lowest-cost funds available in your plan. Over time, it monitors, rebalances and shifts your holdings to an appropriate mix of stocks and bonds as you near retirement.

Of course, Blooom’s algorithm focuses on the lowest-cost funds, which means it may overlook some standout actively managed funds your plan might offer (see The 30 Best Funds in 401(k) Retirement Plans (opens in new tab)). Still, says Costello, fees are “the one thing you can control when it comes your investments.” Blooom plans to unveil a tiered pricing system that depends on the level of services you require, but 401(k) accounts with less than $10,000 will pay just $40 a year. Note that a good, low-cost target-date fund already in your plan might do the job as well.

Conservative investors

We answered, where possible, the online questionnaire at more than a dozen firms, responding as a 50-something investor with a moderate risk tolerance, 12 years to go before retirement and $10,000 to invest. Many programs suggested a 60% stock and 40% bond portfolio. Ally Invest’s (opens in new tab) Managed Portfolios recommended a 56% stake in stocks, 14% in bonds and a hefty 30% in cash.

A static 30% cash position is standard in Ally’s zero-fee robo portfolios. (Investors who want to be fully invested can opt in to a product that charges 0.30% of assets per year.) The decision to stash so much in cash came after the firm conducted a survey of its Managed Portfolio customers, says Ally Invest’s Demmissie, and learned that the average respondent held a 28% cash position. “An overwhelming number of our customers wanted a cash buffer,” she says. The cash helps people to stay invested and may deter them from selling low whenever the stock market turns down, she adds. But this cash-heavy portfolio is best for only the most nervous of investors who are worried about the market. Bear in mind that investors with such conservatively positioned portfolios may need to compensate by saving more in order to reach their goals.

If you’re already retired, some firms offer portfolios geared toward capital preservation and income. Betterment offers four BlackRock Income portfolios that are invested 100% in bonds, tiered by risk level. They’re filled with bond ETFs that invest in U.S. Treasuries, mortgage-backed securities, and investment-grade and high-yield corporate debt, as well as emerging-markets bonds. The income portfolios are designed to preserve capital and provide steady income. The most conservative fund tilts toward high-quality short-term bonds and currently yields 2.05%. The most aggressive one, which is heavily invested in high-yield and floating-rate corporate bonds, yields 4.00%.

Investors with multiple goals

Juggling life’s big-ticket purchases, such as a home or college, with the biggest goal—retirement—is difficult. The sign-up process at Merrill Guided Investing allows you to work toward multiple goals with different time horizons. You’ll have to set up different accounts to do so, as each goal will be assigned a separate portfolio, depending on how close you are to your goal and other factors. But you’ll be able to see all of your accounts on a single “dashboard” at Merrill Edge.

Investors who want to talk to an actual person

If robo advisers are a good first step for investors into the world of investment advice, then a hybrid robo adviser, which combines automated investing advice with a human touch, is a solid second one.

These services typically start as a robo, with a digital accounting of your goals and investments. A consultation via phone or computer with an adviser follows. He or she can craft a more customized strategy—which could include individual stocks, bonds and mutual funds as well as ETFs—and answer questions about other financial issues, such as budgeting or when to claim Social Security.

Five years ago, Vanguard’s Personal Advisor Services and Personal Capital were among the only hybrid advisers. (Both firms offer only hybrid services at the moment, though Vanguard is getting ready to launch its own digital-only advisory service.) Today, many financial firms that offered digital-only services at first, including Betterment, Fidelity, Merrill Edge and Schwab, now have hybrid robo services that include access to a certified financial planner.

Expect to fork over more to open such an account. Fidelity Go’s digital-only service has no minimum, for instance, but you’ll need $25,000 to open an account with its Personalized Planning & Advice service. At Vanguard’s Personal Advisor Services, you need $50,000 to start, and the annual fee is 0.30% of assets (the fee drops for balances above $5 million). Personal Capital’s $100,000 minimum is even higher, and its 0.89% fee is a bigger annual nut, too (the fee tiers decrease for balances over $1 million). But the account comes with robust technical tools and eye-catching graphics that allow you to dissect and view your portfolio by asset class or holding, among other things.

Investors who want to bank and invest all in one place

Two robos are waging a small war over the rest of your cash. Wealthfront and Betterment recently offered high-yield cash accounts to customers. Wealthfront’s pays 1.82%; Betterment’s pays 1.85%. Wealthfront plans to add bill paying and direct deposit features, as well as ATM debit cards. “This is the stepping-stone to the financial nirvana we’re trying to build,” says Wealthfront spokesperson Kate Wauck. For its part, Betterment is now testing a no-fee checking account and debit card that it plans to roll out in early 2020.

Meanwhile, SoFi already offers ATM withdrawals, a debit card, check-writing and a 1.6% yield on a cash management account, called SoFi Money, that is connected to its robo product. Customers’ money “is all in one account in which they can save and spend,” says Brian Walsh, manager of financial planning at SoFi.

Customers at Merrill Guided Investing get a discount, starting at 0.05 percentage point, on the 0.45% annual management fee if they bank at the firm’s parent company, Bank of America, and have a combined balance between both firms of at least $20,000. The bigger the combined balance, the bigger the discount.

A robo portfolio report card

Thanks to Backend Benchmarking, which tracks the robo adviser industry by opening accounts with real money at each firm, we can see how some robo advisers have performed over the past three years.

The Martinsville, N.J., advisory firm, in its quarterly Robo Report, recently reported that for the three years ending September 30, 2019, Fidelity Go and Axos Invest had the best-performing moderate-risk portfolios.

For this ranking, Backend Benchmarking tracked the taxable portfolio at each firm that is closest to a diversified mix of 60% stocks and 40% bonds, both U.S. and international. Even so, these portfolios are not exactly the same. Some have as little as 60% devoted to stocks, and some have as much as 70%. In addition, the allocation to U.S. stocks versus international stocks varies from firm to firm, as does the fixed-income allocation to U.S. and international bonds. We created a composite benchmark of the MSCI All-Country World Index All Cap (at 60%) and the Bloomberg Barclays Global Aggregate Bond index (at 40%) to use as a general reference point.

3 year-annualized return

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Axos Invest7.61%
Personal Capital6.11%

Data as of Sept. 30, 2019. *Composite benchmark return consists of 60% MSCI ACWI All Cap Index and 40% Bloomberg Barclays Global Aggregate Bond Index. Source: Backend Benchmarking.

Nellie S. Huang
Senior Associate Editor, Kiplinger's Personal Finance

Nellie joined Kiplinger in August 2011 after a seven-year stint in Hong Kong. There, she worked for the Wall Street Journal Asia, where as lifestyle editor, she launched and edited Scene Asia, an online guide to food, wine, entertainment and the arts in Asia. Prior to that, she was an editor at Weekend Journal, the Friday lifestyle section of the Wall Street Journal Asia. Kiplinger isn't Nellie's first foray into personal finance: She has also worked at SmartMoney (rising from fact-checker to senior writer), and she was a senior editor at Money.