The robo-advisor industry is growing rapidly. There are new entrants testing the model that are overtaking the legacy robos. Who will win out — or who will be acquired, who will go big, who fill fold—at this point, is anyone’s guess. So when it comes to choosing one, it's important to evaluate a variety of factors in addition to the amount of assets under management (AUM).
Now that Charles Schwab, Vanguard and Fidelity are getting into the game, independent robo-advisors have a greater competitive hurdle to overcome. These behemoth discount brokers already have a stable of clients to funnel into a robo-platform, making their growth somewhat easier to project. Many industry experts agree that Schwab, Fidelity and Vanguard are destined to outgrow even the best-funded start ups, such as Betterment and Wealthfront. In five-to-10 years, many of today’s players will have vanished.
Let's take a look at the biggest players in the robo-advisor field right now as the field is adjusting rapidly. (For more, see: Top Robo-Advisor Trends in 2016.)
Vanguard Personal Advisor Services
Vanguard’s December 2015 robo-advisor AUM was $31 billion, up from $17 billion in May. To better understand why this figure has grown so quickly, realize that the offering has been in beta for two years and Vanguard recently transferred $10 billion in client assets to Vanguard Personal Advisor Services from its Vanguard Asset Management Services.
The robo-advisor's minimum investment amount is $50,000 with a 0.30% management fee. As with all mutual funds and exchange-traded funds, there is an expense ratio fee as well. Fortunately, for Vanguard and most other robo-advisors, the selected funds generally charge very low fees, between 0.05% and 0.50%.
Unlike many of the other robo-advisors, singing onto the Vanguard Personal Advisor Services starts with a conversation between a Vanguard human advisor and the investor. An investment plan is individualized, created and implemented by the advisor in conjunction with the investor. Vanguard’s targeted users are Baby Boomers, unlike some of its competitors who aim for younger investors. (For more, see: A Look at Vanguard's Robo-Advisor.)
Schwab Intelligent Portfolios
As of Sept. 30, 2015, Schwab's intelligent portfolios and institutional Intelligent Portfolios manage $4.1 billion in client assets. This robo-advisor doesn’t charge a management fee. The minimum account amount is $5,000.
Schwab builds an ETF portfolio with up to 20 asset classes. The platform builds, monitors and rebalances your investments without any advisory fees, commissions or account service fees. This no-fee approach sets Schwab apart in the crowded robo-advisor field.
The asset classes include cash, commodities, and real estate investments as well as the typical stock and bond funds. The platform gives you an opportunity to set savings or income goals and will monitor your progress. This robo-advisor gives you suggestions to help stay on track and ups the likelihood that you’ll actually meet your goals.
As of Nov. 5, 2015 Betterment passed the $3 billion AUM mark. Its low $100 entrance requirement is tough to beat. Their fee structure is also competitive and ranges from a 0.35% down to 0.15%. Betterment charges $3.00 per month on accounts worth less than $10,000 without a $100 minimum automatic deposit.
Betterment offers a group of low-fee ETFs and includes the standard diversified stock and bond offerings. Additionally, the firm includes several small, mid- and large-cap value funds. These ETFs expose you to asset classes that have been proven to outperform over the long term.
Since its entrance into the robo-advisory arena in 2011, Wealthfront has grown its assets to $2 billion. A contributor to its explosive growth is its location in and its marketing to wealthy Silicon Valley tech sector employees. Its fees are pretty transparent with a 0.25% management fee after the first $10,000, which is managed for free. The low $500 account minimum is ideally suited to the new investor. (For more, see: How Does Wealthfront Make Money?)
Similar to many of the robo-advisors, Wealthfront populates a portfolio with a diversified selection of low-fee index ETFs. Its add-on services include tax-loss harvesting and a special single stock transfer option (currently for Facebook) and Google employees). Finally, for higher account balances, Wealthfront offers a unique single-stock diversification service which replaces some ETFs with single stocks in order to take advantage of greater tax-loss harvesting opportunities.
According to a company representative, Personal Capital's assets under management are currently $1.9 billion and growing. With the recent reduction in minimum required assets from $100,000 down to just $25,000 for participation in the paid/advisory program, it’s likely Personal Capital will find a host of new consumers for its platform. Fees for the paid service range from 0.89% to 0.49%, depending upon AUM.
Personal capital, a technology-enhanced investment management firm, offers two tiers of services. The free tier gives users access to a dashboard where you can link all of your accounts and see a variety of financial information. According to the firm, the most important part of your financial life is knowing what you have and where it is. The free tool shows cash management, investment analysis, and tries to answer the question, "How am I doing financially?"
The paid advisory service gives you a personalized financial plan and guidance with the help of a dedicated financial advisor. Personal Capital's tax loss harvesting, asset allocation and retirement planning tools strive to increase returns over what competitors offer. (For more, see: BillGuard vs. Mint vs. SigFig vs. Personal Capital.)
At the end of 2015, AssetBuilder’s AUM were $677 million. The minimum investment amount is $50,000 and fees range from 0.45% down to 0.20%.
Asset builder uses its well-regarded Dimensional Mutual Funds (DFA) Advisors fund family to create your portfolio. The firm employs a buy and hold strategy and follows the approach that it’s unlikely to beat the market averages over time. It employs a diversified portfolio to increase returns and reduce risk. Its smart fee calculator is a handy tool for estimating total fees for investors in the AssetBuilder platform.
The Bottom Line
Existing wealth managers with their built-in clientele have an advantage in AUM over the robo-advisor start-ups. Yet no matter which robo-advisor — new guard or old — seems more entrenched in money management, consumers will do well to look at a variety of factors when choosing the best robo-advisor for their personal situations. (For more, see: What's Next for the Robo-Advisor Market?)