Robo-Advisors: What They Cost, and What You Get

Over the past decade or so, robo-advisors – automated platforms that create and maintain diversified investment portfolios – have taken the financial advisory world by storm. With lower fees than traditional financial advisors, robo-advisors have surged in popularity and are expected to continue to grow over the next few years.

With that in mind, here's a rundown of the major players in the robo-advisory market, as well as a discussion of the features, perks, and costs that come with each.

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Features and perks often offered by robo-advisors

As I mentioned, the general idea of a robo-advisor is a service that automatically creates a diversified portfolio for you, and then maintains (rebalances) the portfolio over time. So, it's safe to assume that all of the robo-advisory services discussed here do at least that much.

In addition, there are some other things to look for when selecting a robo-advisory service that may be important to you. Just to name some of the most common:

• Tax strategies – If you invest in a taxable account, you are allowed to deduct an investment loss against your capital gains or even your ordinary income, a concept known as tax-loss harvesting. Many robo-advisory services will do this for you, sometimes included for all clients, and sometimes at an additional cost. This can be a major advantage in a taxable investment account.
• Hybrid advisory model – In the pure sense of the term, a robo-advisory is an entirely automated process. However, "hybrid" models have emerged which include an automated portfolio management component as well as access to a real-live financial advisor. Some robo-advisories offer dedicated financial advisors for high-balance accounts.
• Direct indexing – This means buying individual stocks to create a portfolio instead of funds. A couple of the robo-advisory services do this for accounts with high-balances. This has the effect of saving on fund fees, and also makes it easier to take advantage of tax strategies.
• Proprietary or low-cost funds – Some robo-advisors charge lower management fees (or none at all) if they offer their own funds. Others simply use lower-cost index funds than competitors. With a robo-advisory, the management fee is only half of the cost structure. The underlying mutual funds and ETFs have their own fees, known as expense ratios.

List of major robo-advisors

There are many robo-advisory services on the market, and the industry is evolving rapidly. For that reason, this isn't necessarily an exhaustive list. Rather, this is just intended to be a list of some of the largest and most well-known robo-advisors, and a brief discussion of the features of each (see the list of features in the previous section for descriptions). After the list is a table comparing fees and account minimums for each service.

Wealthfront – Wealthfront and Betterment are the two pioneers in the robo-advisory world. Wealthfront manages the first $10,000 of clients' assets for free and charges a 0.25% fee after that. The service offers daily tax-loss harvesting for all taxable accounts and has a direct indexing servicing for balances of $100,000 or more.

Betterment – Betterment offers up to 1 year of free management, and a 0.25% standard fee on an ongoing basis. For customers who want a hybrid model and have at least $100,000 to invest, Betterment Premium is available with a 0.40% management fee that includes phone advisor access.

Wealthsimple – The thing that makes Wealthsimple unique is that it offers socially responsible investment portfolios. The platform offers free tax-loss harvesting, and has a two-tiered fee stricture: 0.5% fee on balances $100k or less and 0.4% on balances above $100k.

WiseBanyan – Calls itself the "world's first free financial advisor," and the basic robo-advisory service doesn't have a fee, although there are still underlying fund expense ratios. WiseBanyan charges 0.25% if customers want tax-loss harvesting, with a cap of a $20 monthly fee.

Schwab Intelligent Portfolios – Schwab offers two variations of its robo-advisory service, and this is the free one. Schwab can afford to do this, as it makes money by investing client assets in its own funds. Tax-loss harvesting is offered on taxable account balances of $50,000 or more.

Vanguard Personal Advisor Services – This is the largest robo-advisory service in the market by far. It is a hybrid model that includes unlimited access to financial advisors (CFPs). Investing over $500,000 gets you a dedicated financial advisor. Vanguard's appeal is the low-cost structure of its funds, and because of this, its all-in cost is among the lowest of hybrid robo-advisors.

Schwab Intelligent Advisory – Schwab's hybrid robo-advisory product offers lower management fees and lower account minimums than Vanguard. Tax-loss harvesting is free with $50k minimum balance. As a hybrid robo-advisory, clients get unlimited appointments with CFPs.

Personal Capital – Uses individual securities in accounts with $200k, which maximizes tax-loss harvesting. Standard fee is 0.89%, but accounts over $1 million get discounted pricing. Average expense ratio is 0.09%. All accounts have access to a team of financial advisors, and get tax-loss harvesting services, and clients with $200k or more get two dedicated advisors to call, email, or video chat.

Wells Fargo Intuitive Investor– Discounted 0.40% fee with $25k in deposits or $50k in combined balances. Investment options include BlackRock iShares ETFs and some smart-beta products by Goldman Sachs. There are still several unknown factors about Wells Fargo's robo-advisory, since it was just recently announced.

Fidelity Go – The most unique aspect of Fidelity's robo-advisory is its all-in investment fee that includes fund expenses – 0.35% for retirement portfolios and 0.40% for taxable accounts. The service uses Fidelity index funds, but taxable portfolios add BlackRock iShares ETFs. Tax-loss harvesting is not offered.

TDAmeritrade Essential Portfolios – TD Ameritrade's robo-advisory service offers free tax-loss harvesting, and its fund expense ratios of 0.06%-0.08% are among the lowest in the business.

E*Trade Adaptive Portfolio – E*Trade's robo-advisory offers clients a choice between a portfolio of mutual funds and ETFs, or a portfolio made up entirely of ETFs. The hybrid mutual fund and ETF portfolio option has underlying fund fees 0.20%-0.45%, while the all-ETF portfolio's fees are 0.20%, in addition to the management fee. Unlike many of the others, E*Trade does not offer tax-loss harvesting strategies.

Source: Each company's website, and NerdWallet reviews.  Assets under management is as of the latest available data for each company or service. *Fidelity's investment fee includes the expenses of the underlying funds. **Schwab AUM figure is for both robo-advisory services combined.

The bottom line on robo-advisors

Robo-advisors can be an excellent choice for investors who want a diversified portfolio that rebalances over time, but don't need or want the services of a human financial advisor. Different services have different benefits and drawbacks that should be taken into account when trying to find the best robo-advisor for you.