Robo Advisors Are Here. What are the Best Ones to Choose?
Since 2011, this web site has emphasized the importance of finding investment managers who don’t have conflicts of interests, charge excessive fees and don’t have a huge overhead in terms of having national mutual fund wholesaler fund sales forces and excessive executive compensation. This old sales investment management-sales structure was designed for the benefit of huge global investment firms and their staffs and not for the benefit of individual investors.
But today, average investors have more choices than ever, in terms of investments and types of managers, and these choices can go right to your bottom line, (in some cases increasing your net return by 2.9%), so your 401(k) and other investments benefit from having lower expenses and fees and access to a wide variety of lower-cost investments, such as ETFs.
The robo advisor revolution is here and it’s time for more investors to note the benefits of this basic change in selling and managing investment products.
This is all happening because of the huge advances in technology, especially the robo advisor revolution.
Here is an article which explains the basics of robo advisors and how they can put more money into your own investment accounts.
This article comes from Nico Bros and they do a good job of explaining the basic of robo advisors, what they do and how they work. Basically, all this means that technology provides lower costs that are passed on to investors.
In future articles here, I’ll list other robo advisors for your consideration, but it’s clear that the days of old-line investment firms with national wholesaler networks and other personnel structures that only add to your expenses and never to increasing your bottom line should be over.
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How to Find the Best Robo Advisors that Will Help You Make More Money
How to find the best robo advisors may not be easy to answer. Robo advisors are becoming very popular among investors. These are automatic and low-cost investment opportunities. Within moments, robo-advisors help you set-up a diverse, customized portfolio. You can get access to fund management services like a certified financial planner etc. Such services were earlier reserved for the super-rich. For these reasons, robo-advisors are getting the attention of people. In fact, AT Kearney claims that assets managed by robo-advisors are likely to grow by 68% p.a. They’ll become nearly $2.2 trillion in coming five years.
There’s an increasing choice of robo-advisors as new companies enter the industry. Veteran robo-advisors are also increasing their offerings. So how do you choose from the options to get the best robo-advisor? To be honest, the ideal robo-advisor varies from investor to investor. It depends on their financial needs and situations. But, the high-rated robo-advisors have some common traits. For this list, robo-advisors got highest points for solid portfolio management, minimum account balance, and low fees.
We hope this article can help you to make money, get rich and become a millionaire!
What Is A Robo Advisor?
Financial advisors could be costly. Though an average yearly fee of 1%-2% isn’t much, it adds up. E.g., the stock market generates a return of 6.5% after inflation. In this case, a 1-2% fee makes up for 15-30% of the overall return. For people who hardly meet their financial advisors, and have significant portfolios, the total cost can be appalling. People who meet their advisors once, the cost can sum up to $10,000-50,000/hour.
Usually, financial planners don’t help the client outguess the market also. Studies have shown that active investing is unable to beat passive investing. Especially after considering the fees.
Due to high fees and weak performance, many fintech firms created the robo-advisors. It’s a sophisticated algorithm which does the majority of the things financial planners do. But for a very less price. At its center, robo-advisors help build, manage, adjust and improve a portfolio. For a person, who’ll retire after 20 years, the robo-advisor may suggest riskier assets like stocks. But, for a person about to retire in a few years, it may recommend conservative options like bonds.
Why Do We Need Robo Advisors?
- Variety of Services – Robo-advisors help in determining the amount to invest. This is in tune with the financial goals and risk tolerance of the clients. Besides this, robo-advisors also help automate tax-loss harvesting, asset optimization and rebalance the portfolio. Some even help people develop retirement plans and manage their 401ks. Plus, robo-advisors like Betterment automatically re-balance the portfolio without any commission fee.
- Negligible Minimums – This is one of the most significant merits of Robo advisors. They’ve low account minimums than financial planners who ask for an investment of at least $100,000. Some robo-advisors have $0 account minimums. This way, portfolio balance and retirement planning advice became affordable to masses.
- Low Fees – Robo advisors charge 0.25%-0.5% of the portfolio. Financial advisors charge 1-2%. Though this 1-2% may not seem much at the first look. But, it adds up in the long run. The users of robo-advisors get a higher share of investment profits. This amount may also be thousands of dollars for many people. The robo-advisors’ fees don’t always include mutual funds fee and ETF.
- Little or No Conflict of Interest – Usually the financial advisors’ interest differs from their clients’ interest. A financial planner may earn more if he drives his customer toward high-fee products. These products may not suit client’s goals. As robo-advisors use algorithms, they look for the least costly solution to fit client needs. Hence, there is a small conflict of interest.
- High Availability – As robo-advisors are software, they’re always available until the time client has internet access. It’s difficult to access a financial advisor anytime you want. This is because you need to take an appointment to fix a meeting. Financial advisors are very busy people.
- Tax-Loss Harvesting – Clients also get an advanced feature of tax-loss harvesting with robo-advisors. This is the practice of a divesting a loss-making security, i.e., harvesting. It helps offset profit somewhere else in a portfolio. You can then replace this divested security with similar security. Thus, you can maintain an optimal asset allocation by portfolio diversification. The losses on divestment can also decrease the taxable income of the investor by almost $3,000.
- Hybrid Robo Advisors – For some, robo-advisors are not enough. They need more practical human touch. To resolve this issue, many companies provide hybrid robo-advisors. Such robo-advisors have an extra functionality of speaking with human advisors on the phone. These financial advisors can help investors with complex matters which robo-advisors are unable to do currently.
How Do We Find the Best Robo Advisors for You?
We did a ranking of robo-advisors on several criteria. Our experts reviewed over 30 different firms. They spent nearly 100 hours in data crunching and speaking with other experts. Below are the rules we used to find out the best:
- Best All-Round Quality – Some companies surpassed others in every category
- Account Limits – The lower, the merrier
- Fees – We prefer little or no fees
- Assets Under Management – The higher AUM, the higher is the company’s stability and the more you can trust it.
- Features – The more features it has like tax loss harvesting, direct indexing, etc., the better
- Customer Service – Support is critical when it concerns investments
Best Robo Advisors Help You Make More Money
Betterment LLC is among the robo-advisor giants. With $10 billion in assets under management (AUM), it is by far the principal robo-advisor. In July 2016, it crossed the $5bn AUM mark and became the first robo-advisor to do so. Betterment has a passive investment approach. It trades via the Apex Cleaning Corporation, like its arch-rival Wealthfront.
So why many investors prefer Betterment? The service is especially attractive to new investors. It has zero account minimum for its standard or digital plan. The company also provides excellent portfolio management services via its Plus and Platinum Plans. Betterment uses automatic tax-loss harvesting. It promotes that “You can keep an extra 2.9% of your returns every year by using Betterment.” This is because of company’s passive investment approach and rebalancing techniques.
Betterment provides a blend of bond index funds and low-fee stocks. The company will give you a diverse, customized portfolio after knowing your risk tolerance.”