Top 5 Robo-Advisors: A Comprehensive Comparison

The list of the five largest robo-advisors is constantly changing, with platforms doubling in size under short periods and offering similar cash management products that get lumped together with traditional robo-advisory services.

The rise of fintech in Silicon Valley is opening the door for new and existing companies to introduce robo-advisors. A robo-advisor is a software-based product that allows for automated investment and asset managementAsset ManagementAsset management refers to the process of developing, operating, maintaining, and selling assets in a cost-effective manner. that is done largely through algorithms with minimal to zero human interaction. By eliminating the need for human interaction, robo-advisory companies can keep costs down and offer their users competitive fees and rates.

The robo-advisor platform is increasing in popularity among users and, even larger, more traditional financial institutions are introducing their own versions. Our discussion will focus on the five largest robo-advisors globally, including hybrid human/robo-services, such as Vanguard.

Top Five Robo-Advisors by Assets Under Management (AUM)

The Vanguard Group

Vanguard is a hybrid service with over $51 billion in assets under management, operating in the United States. When initially being onboarded onto the platform, Vanguard will provide personalized advice from a human. However, after the initial phase, the portfolio is managed by software.

Because Vanguard offers a hybrid service, they require a minimum account size of $50,000 in order to justify the cost of maintaining the service and employing actual representatives. Vanguard charges 0.30% of AUM, as well as management expense ratios.

Wealthfront

Wealthfront is another fast-scaling startup robo-advisor with over $20 billion in AUM currently, after doubling its AUM in approximately eight months. Due to its scale, Wealthfront now offers services beyond investing.

The company offers a cash account that, in effect, acts as a high-yield savings accountSavings AccountA savings account is a typical account at a bank or a credit union that allows an individual to deposit, secure, or withdraw money when the need arises. A savings account usually pays some interest on deposits, although the rate is quite low. that offers 2.57% APY. Savers can easily transfer funds between accounts, and account services like them are fast becoming an alternative to traditional banks.

Charles Schwab Corporation

Charles Schwab and Schwab Intelligent Portfolio lists over $10 billion in assets under management and operates in the United States. Because of the large scale of the company, it can provide a robo-advisor service for free, regardless of account size. However, they require a minimum investment of $5,000.

The online robo-advisor sign-up process on Schwab Intelligent Portfolio is incredibly simple, using basic questions that will help determine asset allocation. The simplified sign-up process is a part of the value propositionValue PropositionValue proposition is a promise of value stated by a company that summarizes the benefit(s) of the company’s product or service and how they are delivered that makes robo-advisors so popular.

TD Ameritrade

TD Ameritrade is poised to be bought out by Charles Schwab at some point during the first half of 2020. TD Ameritrade’s Essential Portfolios is a robo-advisor that charges a 0.30% management fee and requires a minimum investment of $5,000. It is appealing to existing Ameritrade customers, and with its purchase by Schwab, the company will soon be able to use its economies of scaleEconomies of ScaleEconomies of scale refer to the cost advantage experienced by a firm when it increases its level of output.The advantage arises due to the to begin to compete harder against the rising ranks of Wealthfront and Betterment.

The new and changing landscape will likely see new product offerings in s highly competitive marketplace as millennials begin to further embrace robo-advisory services. Schwab’s purchase of TD Ameritrade represents a new competitive frontier in the robo-advisory space and may even allow the combined company to take the top spot in the years to come.

Betterment

Betterment is a fintech company that‘s become increasingly popular in recent years. It is one of the more well-known robo-advisors and is likely the fifth-largest based on AUM (although figures can fluctuate).

With Betterment, you can’t choose what you invest in; however, they offer a highly diversified portfolio and an automated tax-loss harvesting feature that oftentimes more than pays for their 0.25% AUM fee.

Competition and You

The increased competition among the five largest robo-advisors will likely lead to cheaper fees and more aggressive growth in investments for the average consumer. In many ways, it is still in the early days for robo-advisors.

The growing competition will bring new entrants into this exciting space and will present the average everyday investor who isn’t too financially savvy a new way to grow their savings.  The companies’ low overhead makes them a lucrative way for Silicon Valley to enter into the banking and investment sphere.

Additional Resources

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