Top 5 Robo-Advisory Wealth Management Products

In a society that thrives on instant gratification, thinking about the future often comes second to the here and now. When three days is too long to wait for a package to arrive, it’s no surprise that fewer people are thinking about, and saving for, their futures. However, with the help of robo-advisory wealth management products, you may be surprised at how easy it is now to save and invest.

A recent study from Northwestern Mutual found that one in five Americans have saved nothing for their retirement, while one in three Baby Boomers has less than $25K tucked back for retirement. This is somewhat of a crisis as more people reach retirement age and find that they are woefully underprepared for retirement financially.

The bottom line is that it’s never too early to start thinking about, and planning for, the future. People should save for retirement as soon as they enter the workforce. However, if that ship has sailed, it’s not too late to get started now.

Whether you’re thinking about retirement, or have other long-term financial goals, a robo-advisory wealth management product can help. If you’re just starting to toy with the idea of developing an investment portfolio, or if you’ve been investing for years but are looking to make some changes, the right robo-advisor can offer some important advantages for individual investors.

What Is Robo-Advisory Wealth Management?

robo-advisory wealth management programs help grow finances

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Simply put, a robo-advisor is an automated or online investment advisor. Robo-advisors use automated algorithms to manage your investments. Gone are the days of being required to schedule an appointment with an advisor in person or on the phone. A robo-advisor uses algorithms to make investment allocation decisions for you that are not influenced by the human emotions triggered with day to day market movements.

The major advantages of robo-investing include the price and technology. Advanced algorithmic strategies were too costly for the average investor just 5 or 10 years ago.  Large, institutional investors had access to these technologies, but it was just not affordable and didn’t make sense for the average investor.

Avoid Emotional Decision Making

The rapid advance of technology has brought down the cost and enabled much more advanced algorithmic technologies to be available to a much wider audience with lower minimum investment levels. This is an important development because the big advantage of these technologies is that they remove emotion from investment decisions.  The biggest challenge for individual investors is resisting the temptation to buy high and sell low.

I saw this struggle first hand when I answered phones at a large mutual company as part of my first entry-level job in the financial industry. I watched helplessly as caller after caller asked me to sell mutual funds just as they were trading a low point and use the money to reinvest into the mutual fund currently trading at a 52 week high.

The real benefit of robo-investing wealth management platforms is they offer the ability to help you make better long-term investment allocation decisions by making decisions based on logic rather than emotion. That means you won’t be systematically selling low and buying high like the investors I tried to counsel.

Robo-advisors can help you manage your retirement accounts and taxable accounts, as well as some offering to help you manage 529 college savings accounts, custodial accounts, trust accounts and more. You’re able to choose how aggressively you want to invest, and robo-advisory wealth management products often have lower minimum investment amounts than a traditional advisor might require.

Is a Robo-Advisory Wealth Management System a Good Fit for Me?

robo-advismenet wealth management programs make finances easy

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A robo-advisory wealth management program might be a good fit for younger investors who have some time before thinking about retiring. Using a robo-advisors can be a great way to get your feet wet with investing, especially if you have a simple portfolio. Using a robo-advisor can be an affordable way to learn about investing and start developing your own investment portfolio.

If you aren’t sure that robo-advising is the best route for you, some companies offer a hybrid service. While working generally the same as a regular robo-advisor, you can still also have access to human advisors as needed, usually for a bit of a higher fee.

The biggest downside to using a robo-advisor is that you won’t be in direct control of your investment decisions.  For most people, this is actually one of the biggest positives of the platform.

However, if you are already a knowledgeable investor, you might prefer to retain control over your investment decisions.  If you happen to be in this category, you might consider making a small allocation to a robo-advisory wealth management platform and compare the results with your self-managed portfolio.

You might be surprised to find out that an algorithm can generate better returns than you can!

How Do You Choose a Robo-Advisory Wealth Management Platform?

choosing a robo-advisory financial program

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As robo-advisory wealth management programs have increased in popularity, the options available to investors have increased as well. Choosing a robo-advisor can seem intimidating, but it certainly doesn’t have to be. Spending some time doing a bit of research should help you narrow your search down to a few good options that will work for you.

A few things to consider when choosing a robo-advisor:

  • How much is the management fee?
  • Do I want the added human touch of a hybrid service?
  • Does the service offer the account types I will need?
  • What company has the products and services that work best for me?

While there are many options available on the market, we have selected the top 5 options based on criteria that include overall reputation, product platform and options, ease of use and low costs.

Learn About the Top Five Robo-Advisory Wealth Management Platforms

5.) Betterment

betterment is a robo-advisory wealth management program

Whether you’re brand new to investing or have been doing it for years, Betterment is ready to work with you. With two different options, Betterment Digital and Betterment Premium, this robo-advisory wealth management system is able to help you choose services and develop a portfolio that works best for you and your investment goals.

Betterment Digital isa great place to get started, with the ability to invest whatever amount you’d like to get started. The annual fee is 0.25%, and you have access to financial advice, automatic rebalancing and great customer support.

Betterment Premium is designed for more serious investors with a minimum opening balance of $100K and a 0.40% annual fee. The added fee covers the cost of access to real-life advisors who can help you evaluate your financial needs through life events and more.

This option works with you to create a plan that’s best for you, then lets the robo-advisory wealth management part get to work when it’s time to manage your investments. Betterment automatically rebalances your account, and dividends will be reinvested for you automatically.

Betterment also offers a service called SmartDeposit. This service allows you to link your checking account, and choose the minimum balance you want in your account. Betterment will keep an eye on your account and automatically invest extra cash for you without taking your account below that minimum balance you set.

Pros

  • No minimum investment required.
  • Investment options include passively managed options which allow for low asset management fees starting at .15% to .40% depending on your plan choice.
  • Two simple plan choices which offer a lower minimum fee for more knowledge investors and a slightly higher fee level for investors that would prefer unlimited access to Certified Financial Planners via phone.
  • No minimum investment required for access to automatic tax harvesting feature.

Cons

  • More limited asset class options. Available investments are focused on passively management stock and bond portfolios. More specialized asset classes like real estate or commodities are not available.
  • You must move your assets to Betterment in order to access their platform.

Learn More About Betterment

4.) Acorns

Acorns is a helpful robo-advisory wealth management program

Acorns

We’ve all heard that a penny saved is a penny earned. Acorns is taking that to the next level by helping you invest your spare change – literally! Link the cards you use most often, and Acorns will automatically round your purchase up to the next dollar each time you swipe, investing the difference for you automatically. This makes Acorns an easy way to save money.

This robo-advisory wealth management program is a great option for college students, who get four fee-free years of Acorns Core with a .edu email address. Other people will pay fees of $1, $2, or $3 a month for others, depending on your account type. Depending on your account balance, this fee can be a little higher than other robo-advisors. You likely won’t notice that the spare change is “missing,” so this is a great way to start investing.

This program has three levels:

  • Acorns Core ($1/month). The most basic level, which helps you automatically invest your spare change.
  • Acorns Later ($2/month). This is Acorns’s version of a retirement account, helping you set up an IRA or rollover an existing account.
  • Acorns Spend ($3/month). A checking account that connects right with your Acorns Core and Acorns Later accounts.

This program also offers a unique program they call Found Money, in which they have partnered with companies who will give you cash back in the form of a deposit into your investment account when shopping with them using a payment method linked to your Acorns account.

Acorns is a great option for people who are looking to start investing but don’t have a bunch of extra money available. This program makes investing easy and relatively painless by automatically investing your spare change for you. As long as you keep a high enough balance to make the fees worth it.

Pros

  • Ideal platform for new investors to learn about investing and develop consistent savings habits.
  • No minimum investment required to start.
  • No fee for college investors
  • Low fees of $1 a month for taxable accounts or $2 a month for a retirement account.
  • Innovative investment concept that lets you set up linked cards to your account and roundup online purchases to the nearest dollar.  Acorns deposits the rounded up amounts into your account with each purchase.

Cons

  • More limited asset allocation options that are limited to exchange-traded funds in real estate, large cap equity, small cap equity, emerging markets and corporate and government bonds.

Learn More About Acorns

3.) Personal Capital

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Personal Capital is a robo-advisory wealth management product that wants to help you transform your entire financial picture, not just help you invest. By offering a suite of free financial tools, including tools to help with retirement planning, budgeting, and cash flow, Personal Capital helps you keep an eye on your entire financial standing when making investment decisions.

Personal Capital also takes that hybrid approach.  It offers you access to a team of financial advisors if you invest less than $200K. If you invest more than that, you’ll get two specific advisors. This access to advisors comes at a higher price, however. Personal Capital fees come in at 0.89% until you’ve invested over a million dollars. Once you hit the $1 million mark, the fee starts decreasing as your investments continue to increase.

By helping you have access to your entire financial situation in one place and offering access to advisors who can help guide your financial decisions, Personal Capital can be a great robo-advisory wealth management tool for making informed decisions when used as intended. While this program does come at a higher rate, it can be worth it if you’re able to make better financial decisions in the long run.

Pros

  • Personal Capital offers a base level free service that includes detailed analytics highlighting your investment portfolio and cash flow.
  • The free platform includes access to a dedicated Personal Capital app.
  • Free dashboard includes advanced tools such as retirement forecasting and investment allocation analysis.

Cons

  • Access to the Company’s most advanced algorithms requires a $200K minimum investment and an ongoing management fee of .89%. However, the management fee declines with higher levels of investment and represents a competitive fee compared to standard full-service brokerages.

Learn More About Personal Capital

2). Trim

trim is a greatfinancial management option

Trim

This service is more of an automated savings account than an investment tool. However, the money you save using Trim can easily be invested!

Trim takes a look at your connected accounts to look for and suggest ways you can save money. Maybe you’re paying too much on a bill and Trim can negotiate it for you. Or perhaps this robo-advisory product can find you a better insurance rate or suggest subscriptions you’re paying for but maybe aren’t using.

Trim makes their money by saving you money. If they successfully get you a lower rate on your bills, they’ll take a percentage of your savings as their fee. You’ll still be saving money, though, so there’s virtually no risk involved for you.

Pros

  • Excellent platform for analyzing your monthly budget and figuring out how you can reduce spending.
  • Avoid negotiating directly with your cable and phone companies. An automated service will negotiate directly with your cable and phone companies to reduce your bill.
  • Trim will automatically analyze your spending patterns. You’ll get specific suggestions about how to save money because Trim will highlight fees, subscriptions and other hidden fees.

Cons

  • Access to a financial coach to provide more personalized service requires a monthly fee that ranges from $3 to $10.
  • This product takes a 33% fee of any annual savings from lower bills it can negotiate for you.

Learn More About Trim

1.) Swell Investing

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This company is a robo-advisory wealth management tool all about helping you make the largest impact possible with your investment. When you invest your money with Swell, you’re investing in companies that are changing the world. Truly. This socially responsible robo-advisor goes through a rigorous process of choosing companies to invest in that are truly working hard to make the world a better place while also being on track to grow.

This unique approach to investment allows you to choose a global challenge you’re especially passionate about — whether that’s renewable energy, clean water, zero waste, disease eradication or something else — and invest in companies that are working towards solutions. You’ll own shares of these companies when you invest through Swell.

Swell’s annual fee is 0.75% with a minimum investment of fifty bucks. This is a small price to pay for being able to know that your investments are making the world a better place.

Pros

  • Low minimum investment of just $50.
  • Opportunity to generate investment returns
  • Investments go to companies making a positive impact on the world.

Cons

  • The .75% management fee is higher than some other robo-advisory wealth management systems. However, the fee is very competitive when you compare it to other actively managed socially responsible mutual funds.
  • Your investment portfolio will not be as diversified as a more standard equity or bond exchange-traded fund found in other robo-advisor platforms. This is not necessarily bad. Just make sure that you limit a non-diversified portfolio to a smaller percentage of your total portfolio.

Learn More About Swell

Final Thoughts

robo advisory wealth management

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The robo-investing industry is still in its early stages, but Nobel prize-winning algorithms developed by Eugene Fama and Robert Shiller that have been incorporated into Betterment’s platform show robo-investing offers very real benefits to investors.

Good long-term investing needs diversification. As your portfolio grows over time, consider diversifying across multiple investment styles and categories. But clearly robo-advisory wealth management programs offer a very viable option for an allocation in your portfolio.

This article is a guest post written by Lou Haverty, CFA.  Lou is the founder of Financial Analyst Insider, which creates content and advice for aspiring financial professionals.

 

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