A robo-advisor is an online investment management service that uses algorithms to optimize passive indexing strategies. Active strategies, enabling specific, individual transactions, are sometimes offered too.
What should I look for in a robo advisor?
Robo-advisors typically charge fees lower than traditional brokers and advisors. But services and features can vary, so review the following items when reviewing your options:
The type of accounts and minimums: Check if the robo-advisor has the account type you want to open. This may sound obvious, and while many robo-advisors offer a variety of investment options, some don't offer specific kinds, like traditional tax-advantaged retirement accounts. Requirements for minimum balances can vary widely, too.
Fees/Costs: Robo-advisors typically charge either a flat advisory fee or a commission fee, calculated as a percentage of your account's balance on an annual basis. Commission fees vary widely, ranging from 0.25% to 0.50%, and some charge additional fees for different types of investments. For example, exchange-traded funds often require a fee structure different from other kinds of investment. Altogether, robo-advisors' fees may be higher than traditional financial advisors. Review your choices closely before committing.
Customer Service: Some robo-advisors provide access to a human financial advisor. But for many, human customer service isn't offered at all -- or requires a premium account or extra fees.
Added Features: Some robo-advisors offer daily rebalancing. Others offer tax-loss harvesting to help at tax time. Make sure the account you choose matches your expectations.
How much money do I need to invest with robo-advisors?
Many don't require a large minimum deposit to open an account, but again, requirements vary, and some can require a balance of more than $25,000.
Which robo-advisor delivers the best returns?
Following are the top robo-advisors with details on common fees:
Betterment offers a variety of services, from personalized retirement plans to automatic rebalancing and tax-loss harvesting. The commission fee varies between 0.25% to 0.40% for the basic version, with no minimum account balance required. The premium version, with live support seven days a week, requires $100,000 minimum balance.
Schwab Intelligent Portfolios is the robo alternative to Schwab's traditional advisor-based services, offering tax-loss harvesting, automatic rebalancing and unlimited customer support 24/7 at no extra cost. There is no commission fee to open an account, but it requires an account minimum balance of $5,000.
Wealthfront provides tax-loss harvesting and automatic rebalancing., with advisory fees charged at 0.25% after an initial investment of $5,000. Some Wealthfront funds require an expense ratio fee. A minimum balance of $500 is required to open an account.
Ellevest is primarily focused on women, though its financial planning services are available to everyone. Ellevest offers automatic rebalancing but not tax-loss harvesting. The monthly fee ranges from $1 to $9 with no requirements on account balances.
SoFioriginally focused on student loan payments but has expended to robo-advisor investing, aiming for young beginners and offering both passive and active investing. SoFi offers free 24/7 access to financial experts, and on active investing account, there's a $75 fee for each outgoing transfer. Required minimum account balances start at $5 a month.
How can Bright help?
Bright is a lot like these robo-advisors, offering algorithmic financial planning. Each personal Bright Plan offers a step-by-step guide to reaching your goals and automates smart payments on your credit cards.
Powered by MoneyScience™, Bright studies your finances, learns about your debts and goals and makes payments for you to get you debt-free fast. Bright can also build your savings faster, automatically.
Bright Credit Builder provides an easy and safe credit boost, building a positive payment history and improving your utilization ratio automatically. Or use Bright Credit Transfer to consolidate debts and build healthy credit.
If you don't have it already, download the Bright app from the App Store or Google Play, link your checking account and your cards in a few steps, set your goals and let Bright get to work.