Investors have always had a wide array of choices in seeking help with their investments and other financial issues. With the addition of online or robo-advisors in recent years the choices have increased.

If you feel that a robo-advisor might be the right choice for you how do you go about choosing one? What criteria should you use to evaluate a robo-advisor? (For a list of robo-advisors, click here.)

Is a Robo-Advisor the Right Choice for You?

The first step is deciding whether or not a robo-advisor is the right choice for your situation. The issue is the complexity of your situation and your comfort level in working with advice that is primarily dispensed online. Additionally, if your situation involves complex financial planning issues that go well beyond allocating your investments and related services then you might be better served with a traditional financial advisor who provides advice in areas like estate planning, dealing with corporate stock options and other situations.

The topic of deciding if an online advisor is right for you is a topic for another full article so for the sake of this one let’s assume you’ve decided to go with a robo-advisor. How do you evaluate and decide upon which robo-advisor to use? (For related reading, see: Is an Online Financial Advisor Right for You?)

What Services are Offered?

The first step is to determine what type(s) of financial advice you need. The services offered vary though most robo-advisors offer investment advice and portfolio management in one form or another.

LearnVest is an exception among the major players in that while they offer investment recommendations, they do not offer ongoing investment advice. There focus is on budgeting and financial planning and they offer access to live help via the phone.

A staple for most robo-advisors is asset allocation and portfolio management. Generally, this service is delivered via the use of an algorithm of some sort and the use of ETFs. 

Above this basic level of service several robo-advisors offer tax-loss harvesting services for taxable portfolios. This allows investors to take advantage of losses in their taxable portfolio if appropriate.

Even within the investment management realm there are some specialized robo-advisors. For example, Rebalance IRA focuses on retirement accounts and offers human interaction to clients. 

Folio Investing offers a number of pre-set portfolios of stocks or ETFs that clients can buy as-is. Similarly, Motif Investing offers pre-done portfolios of 30 stocks for one price.

Personal Capital offers investment management and the ability to manage all of your accounts on a consolidated basis. Their service is targeted a bit farther upstream in terms of net worth than some of the other robo-advisors. (For more, see: A Guide to Choosing the Best Robo-advisor.)

How Much Will it Cost?

Just as there are variations in the services offered there are variations in the fees charged.

LearnVest’s fees range from $89 to $399 for their initial review and then $19 per month after that.

Personal Capital’s fees range from 0.49% to 0.89% of the amount invested.

Other robo-advisors generally range from 0.15% to 0.50% of the assets under management. Some charge a one-time set-up fee as well.

Remember that the expense ratios of the underlying exchange-traded funds (ETF) or mutual funds will apply as well. Additionally, depending upon the advisor chosen, there might also be transaction costs for trading various investments.

Human Interaction

Robo-advisors vary in terms of offering the ability to interact with a human about their situation or being totally automated. Your comfort level either way should be a consideration in evaluating a robo-advisor. (For more, see: Robo-Advisors and a Human Touch: Better Together?)

Gauging Past Results

Robo-advisors are a relatively new phenomenon and most do not have any investment history that pre-dates the current stock market rally. In fact a key issue is how these firms will fare the next time the stock market suffers a major downturn. (For more, see: What's the Best Robo-Advisor?)

Integration with Major Financial Services Firms

The popularity of robo-advisors has not been lost on major players in the financial services industry. Betterment has forged an arrangement with Fidelity Investments where financial advisors on Fidelity’s institutional platform can offer a version of Betterment’s RIA version to their clients. Additionally Fidelity has inked a deal with LearnVest as well.

Vanguard has launched its own version of a robo-advisor and it has reportedly been quite successful in its early, limited launch. The firm is considering rolling this low cost, robust service to more customers in the near future. (For more, see: What's Next for the Robo-Advisor Space?)

Charles Schwab Corp. (SCHW) will be launching their financial advisor version of a robo-advisor in the near future. The service will allow financial advisors using their platform to white label the service to their clients at no charge. Schwab will make money on the underlying assets. (For more, see: Schwab's New Robo-Advisor Service Explained.)

When considering robo-advisor, affiliations with major firms like Fidelity, Vanguard or Schwab might be something to consider. These firms have the money to invest and the time to allow these services to grow.  Additionally as your needs change you will be positioned to transition seamlessly to other services offered by these firms. 

For financial advisors working on the Fidelity and Schwab platforms these services may be a viable means to connect with younger Gen X and Millennial clients, serve their needs and to cultivate them as their target clients of the future.

The Bottom Line

If you’ve made the decision to go with a robo-advisor there still is the decision as to which one best fits your needs as an investor. Factors to consider are the types of advice and service the robo-advisor offers, the level (if any) of human interaction offered, the minimum investment required as well as any fees or expenses that you will incur. The increasing interest of major financial services firms in this arena is a further consideration for both potential investors and for financial advisors. (For related reading, see: How Financial Advisors Can Adjust to Robo-advisors.)

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