Do you want a financial advisor without all the high fees? Are you comfortable letting a robo-advisor make decisions on your behalf? If so there are numerous companies that offer robo financial advising at a fraction of the cost of certified financial planners. But remember before you get too excited that you do pay for what you get. These are low to no frills advising companies that operate on the Internet for the most part. While they have low management fees, they also have low overhead due to the fact they do not have any financial planners on the payroll. For different people, there are different companies that could be used based on where you are in your life. Some companies are geared towards younger workers while others more towards people nearing retirement. Not all of these companies are created equally so do your homework before you invest.
With billions of dollars going into these fairly new companies who manage assets based on algorithms and a brief questionnaire, it is no wonder people are taking an interest in them. Let’s consider a traditional financial planner typically requires a large asset base then will charge you 1% to 2% of your total assets under management. By contract with one of the older robo-advisors Wealthfront, you can open an account with as little as $5,000 and pay 0.25% of your assets on an annual basis. And with most robo-advisors they invest heavily in exchange traded funds (ETF) that often do not charge commissions. So with an index fund with low management fees and Wealthfront’s fee you can be invested for about 0.50% or less of your assets. That is a far cry from the 1% to 2% charged by traditional advisors, and it could be more depending on if they charge you commissions. But do not think that all robo-advisors are inexpensive as some can charge upwards of 1% of assets.
Young investors have plenty of choices when it comes to a robo-advisor, and many are available with some more aggressive investment options that are ideal for younger investors. Wealthfront is a favorite here due to their fee structure and investment choices. But not to leave them as the only one I also think Betterment and TradeKing are good choices as well as they are established companies. Betterment tends to be stock heavy that is what a younger investor needs in my opinion. Here as in any age group you need to be aware of the company, its age and financials are all necessary. Take WisaBanyan as they are a year old and only have about $30 million under management. That pales in comparison to the companies with billions under management.
People in their thirties and forties tend to have assets in an IRA, workplace accounts and maybe even brokerage accounts. And they will by that nature need to have a more comprehensive advisor to take that all into account. SigFig is one such company that will advise you with accounts in Fidelity, Schwab, or TD Ameritrade so keeping some individual equities is a possibility. Bear in mind most of the robo-advisors use ETF’s to invest your money and not individual equities. Some of the discount brokers are also entering the robo-advisor forum as well, and that makes good sense in my opinion. Schwab has a good reputation and offers an excellent product, but they appear to be somewhat conservative in investing. To be honest, they may be too conservative when you consider they have a 25-year-old in 30% cash and bonds.
For older investors, I have one real frontrunner, and that is Vanguard due to the fact they offer some of the best funds and also employ about 300 certified financial planners to offer you assistance. The key here is you will need $50,000 to start, and they will charge 0.30% of assets to give you access to the planners. You can chat, video, call or stop in one of their three offices to talk to a planner. Not a bad deal and it seems to be at a good price.
Robo-advisors are not for everyone, but they do deserve a look if that is what you are needing. But please remember that this is a relatively new industry but one that is growing very fast. These companies are becoming very popular, and there are many choices for people to choose from, so it is important to do your homework.
For more information or if you have any questions, please feel free to contact me.
