Gone are the days where a money management firm is populated with white haired guys buying and selling stocks for a list of tony clientele. Today, investment managers must be savvy tech professionals that embrace the rapidly changing investing landscape. The robo-advisor is at the forefront of this new investing world. Both BlackRock Inc. (BLK) and Vanguard, and more recently Charles Schwab (SCHW), all established investment firms, are on the cusp of the new investing world order. BlackRock committed to buying FutureAdvisor, while Vanguard launched its own robo-advisor service called Vanguard Personal Advisor Services and Schwab just launched Intelligent Advisory for emerging and mass affluent investors. So which is the better bet?
BlackRock’s FutureAdvisor Platform
According to a recent Forbes.com article, BlackRock to Buy FutureAdvisor, Signaling Robo-Advice Is Here to Stay, BlackRock is committed to joining the new order of technology investing platforms. In the article Rob Goldstein, head of BlackRock’s technology services division, is certain that technology-influenced investing platforms will continue to grow and expand over the coming years reinforcing BlackRock's decision to buy FutureAdvisor. (For more, see: What Blackrock's Roboadvisory Entry Means.)
FutureAdvisor’s mission is to give middle income-investors the opportunity for wealth management services previously only available to the wealthy. The BlackRock FutureAdvisor investment philosophy rests upon solid modern portfolio investment research that favors a diversified index fund investing approach. After considering the user's age and risk profile, the platform transitions the managed accounts into diversified, low fee, index exchange-traded funds (ETFs).
While some robo-advisors require the investor to sell all their assets and transfer the assets to the new robo-advisor’s platform, BlackRock's FutureAdvisor takes a different approach. This robo platform directly manages the user's brokerage and retirement accounts. The service rebalances the accounts to lower investment fees and diversify risks. Additionally, the BlackRock FutureAdvisor approach offers attention to the tax implications with tax-loss harvesting for accounts worth more than $15,000. (For more, see: Robo-Advisors and a Human Touch: Better Together?)
The platform currently offers free investment advice that the user can implement on their own to any investor who links their account to the software. This free service tells investors what to buy and sell in order to minimize investment fees and diversify risks. To qualify for the direct investment management services, there is a $10,000 account minimum balance and the management fee is 0.50%. After the Blackrock FutureAdvisor partnership is in place there may be additional changes to this robo-advisory service.
According to BlackRock, FutureAdvisor will continue operations within BlackRock Solutions, the company’s risk-management and investment platform, although the features of the robo-advisory program may be subject to change.
Vanguard Personal Advisor Services
Vanguard’s newly launched Personal Advisor Services is targeted at the Baby Boomer market, in contrast with some other platforms that are geared toward younger generations. The Vanguard Personal Advisor Services begin with a meeting between the client and their own personal advisor. They discuss the investor's situation and goals. Next, the advisor creates a customized financial plan which is put into action. With Vanguard Personal Advisor Services, the level of the client’s involvement depends upon his or her preferences. This personalized approach is created to save investors from themselves and making the common mistake of buying high and selling low. (For more, see: A Look at Vanguard's Robo-Advisor.)
As would be expected, the portfolios are housed in Vanguard accounts and utilize their low fee index and exchange-traded funds. There’s no real disadvantage here as Vanguard is widely considered to offer a stable of top notch, low fee funds.
The account minimum for the Vanguard Personal Advisor Services is $50,000, a bit steep for younger investors. The management fee is a reasonable 0.30% of assets under management (AUM). This compares favorably to most human financial advisors who usually charge 0.70% of AUM or more. Investors with more than $500,000 are assigned their own individual personal financial advisor. Those with less have access to a team of advisors through a toll free phone number. (For more, see: How Financial Advisors Can Adjust to Robo-Advisors.)
Schwab Intelligent Advisory
The new robo-advisor from Charles Schwab for individuals won't be available until later in 2017, but it will offer financial plans for users who can input information to a self-directed online tool. The service will also feature fully-automated portfolios for investors, and they can reach out to a team of CFP's within Schwab's services if they need guidance or some extra human support.
While this new robo-advisor offering isn't available yet, investors can still start making comparisons with Vanguard and BlackRock. Intelligent Advisory accounts start with a minimum $25,000 investment, and will be aimed at those investors who want more than the purely robo-advisor (that is, non-human) services offered by Schwab's Intelligent Portfolios. Clients who use this human-assisted robo-advisor will pay 0.28% of assets, but this fee will be capped at $900 for each quarter. Schwab will not charge trading commissions or account service fees for these clients, and the automated portfolios will be built with ETFs from Schwab, but also Vanguard, iShares and PowerShares. (For more, see: Who Wins with Robo-Advisors? Everyone?)
Which is Right for You?
Since Schwab's robo-advisor isn't available yet, we'll just consider the first two options. Let’s start with the one similarity between the platforms. Both recommend low fee funds. Here are the major differences:
1. Vanguard offers access to financial advisors, whereas FutureAdvisor doesn’t.
2. FutureAdvisor doesn’t require you to transfer your accounts, while Vanguard requires your assets to be invested in a Vanguard brokerage account.
3. Vanguard’s minimum is $50,000 versus Blackrock’s $10,000 minimum for management services and zero minimum for access to their recommendations.
4. Vanguards fees are 0.30% of AUM versus Blackrock’s 0.50%.
The Bottom Line
If you don’t have $50,000 to invest, then clearly Blackrock’s FutureAdvisor is the right choice. If you must have a financial advisor with whom to consult, then you’re better off with Vanguard. If your main criteria is a lower fee, then Vanguard’s fee is more cost efficient. In general, both Vanguard Personal Advisor Services and BlackRock's FutureAdvisor are sound robo-advisors from reputable firms. As Schwab rolls out it's Intelligent Advisory, this comparison may need a review. Ultimately investors need to find the robo-advisor who fits best with their own personal situation. (For more, see: What's Next for the Robo-Advisor Space?)