What robo-advisers do right 

Retail robos have a lot to offer investors, but are they really as good as they seem?

Robo-advisers are everywhere — on television, in consumer media and professional publications. What is really under the hood? What do these services actually provide to investors? In this three-part series, I will address both the positives and negatives of robo-advisers, as well as how investment advisers might deal with them.

According to Investopedia, “A robo-adviser is an online wealth management service that provides automated, algorithm-based portfolio management advice without the use of human financial planners.” Companies such as Betterment, Wealthfront and Charles Schwab are just a few of the many robo-platforms proliferating. For the most part, robo-advisers offer a choice of portfolio models, ETF investments, rebalancing and tax-loss harvesting. And as online solutions with low minimums, robos give the average American access to professional investment management.

With Betterment, investors are led through some easy steps to select their allocation between stocks and bonds. Then low-cost ETFs fund the chosen diversified portfolio. Although diversified, Betterment’s portfolios do not include real estate or commodities. There is no minimum investment, but automated tax-loss harvesting is provided only for accounts of $50,000 or more. Fees are low, ranging from 0.15% to 0.35%. Betterment also has its own mobile app.

Wealthfront’s offering is similar to that of Betterment. Its fee is 0.10% on accounts over $10,000. The minimum account size is $500. Wealthfront’s portfolios are somewhat more diversified than Betterment’s; for example, real estate ETFs are included. For accounts of at least $100,000, Wealthfront will utilize individual U.S. stocks — as many as 1,000 — to enable more effective tax-loss harvesting.

Schwab’s offering is advertised as free and has a portfolio minimum of $5,000.

Other robo-providers include AssetBuilder (which uses DFA funds), FutureAdvisor, Rebalance IRA, Acorns and more.

What are the significant benefits provided by robo-advisers?

– Available to younger, less affluent investors

– Low fees

– Low-cost investment vehicles

– Convenient

– No commissions

– Diversification even for small accounts

It is clear that robo-advisers can be a great alternative for many investors. But are they really as good as they seem? Stayed tuned for part two.

Source: InvestmentNews – What robo-advisers do right

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