Consumer Advocacy
What you need to know
Robo-Advisors

  • Investing is always risky, so be patient and keep the big picture in mind.

  • Make sure whoever is advising you abides by the fiduciary standard.

  • There  will always be underlying costs when buying funds.

  • While your investment losses aren’t insured, the SIPC will cover you if your brokerage goes bankrupt.

Our Approach

How we analyzed the best Robo-Advisors

Features
We favored robo advisors with a diverse set of features like tax-loss harvesting, access to financial advisors, or SRI portfolio availability.
Pricing & fees
Most robo advisors charge management fees, have minimum deposit requirements, and include other underlying fund fees that can add up over time.
Reputation
We looked for a smooth user interface and helpful navigation tools, with accessible insurance information and transparency.
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We receive compensation from these partners, which impacts the order they appear on the page. That said, the analyses and opinions on our site are our own and we believe in editorial integrity.

Our Top Picks: Robo-Advisors Reviews

Ever since the birth of robo advisors, other, much larger companies have started to develop their own digital platforms. Big institutions like Wells Fargo, Charles Schwab, and Vanguard are, at the moment, some of the biggest players in the robo advisor industry. Most of our picks are what are called “independent robo advisors”, companies that were born as robo advisors, instead of big banks or funds that created the service after years of existing. One of our picks, SoFi, started out as a student lender, but it was still a young company when they created their robo advisor service, and their platform is very accessible to young investors. Another one of our picks , Personal Capital, was chosen for serious investors precisely for their track record and the level of service they provide for high net worth customers.

Acorns review

Best for Beginners

Screenshot Acorns.com, December 2019

Management Fee

Minimum Deposit

Average Expense Ratio

Tax Loss Harvesting

Human Advisors

SRI

$1-3

$0

0.10%

No

No

No

 

Acorns is a very simple platform without the wide array of features of some of its bigger competitors. Its biggest advantage is its pragmatism. The cost of Acorns is actually a lot higher than the rest of our selections—if you invest $1,000, there’s a 1.2% management fee, although that percentage goes down to 0.12% for investments of $100,000 or more). 

So, what are Acorn’s benefits? First, the platform’s simplicity is good for beginning investors that don’t know much about the stock market. Second, its popular round-up feature helps beginners save and invest without even noticing that they’re doing so. When you make a purchase, Acorns will round up the amount and invest the difference. Basically, the company helps us do what many of us used to—drop our spare change into a piggy bank—but with the added benefit of having that change increase over time thanks to compound interest. It doesn’t hurt and it’s effective. For people that are not used to saving, this is a useful tool.

There is a $5 referral bonus, and they have partnerships with companies like Disney and Apple that invest a small bonus when you buy from them or sign up for one of their services. 

Acorns has two membership tiers. For $2 you get an IRA account called Acorns Later. For $3, you also get a metal debit card that works as a checking account which you can make transfers to from your original bank, all within the app itself.  Getting the card also includes “Real Time Round-ups”, which are invested a lot faster than regular round-ups. On top of that, a lot of businesses will invest cash back when you purchase with the card. 

While Acorns might be a bit pricier than competitors, it more than makes up for it in beginner-friendly features that can get you up and running.

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SoFi review

Best Value

Screenshot Sofi.com, November 2019

Management Fee

Minimum Deposit

Average Expense Ratio

Tax Loss Harvesting

Human Advisors

SRI

0.0%

$1

0.08%

No

Yes

Yes

 

Recently, SoFi changed its fee to… well, free. They’re not the only free service, but their catalog of features and services goes beyond their competition. 

Social Finance, Inc. started as a loan service for students, and since it started it has complemented its service with educational resources. Now, as a free robo advisor, they remain an attractive option for young investors who need financial education.

For the low price of nothing, you gain access to a wide array of educational resources, with career and financial planning to help provide a clearer outlook on investing. They also offer free access to financial advisors through email and phone. On top of that, they have a membership program with many benefits across all their different services and platforms, including social gatherings for networking and gaining even more guidance from SoFi staff and other experienced investors. 

They offer a diversity of investment accounts with their Automated Investing service, including Traditional, Roth, and SEP IRAs, and joint taxable accounts. They also support 401(k) rollovers.  There are even more financial products across their full platform, as SoFi is a big company that offers loans, insurance, and even a Cash Management account. Finally, with SoFi Relay, a spending tracker, you can keep an eye on all of the accounts you sign up for.

All of these services are offered for free and with a very low average expense ratio.

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Ellevest review

Best for Socially Responsible Investing (SRI)

Screenshot Ellevest.com, November 2019

Management Fee

Minimum Deposit

Average Expense Ratio

Tax Loss Harvesting

Human Advisors

SRI

0%

$0

0.11%

Complicated

Yes

Yes

 

As the economy grows, more and more of the practices required to sustain it can directly (and negatively) impact the environment. Naturally, some people worry about it and care enough to try to make a difference. In the financial world, this has led to something called Socially Responsible Investing. SRI (which can also stand for “Sustainable, Responsible, and Impact Investing”) is the concept of investing in companies that not only aim to lower carbon emissions and production waste, but also treat their employees fairly. 

SRI can also focus on specific issues or values. It may even be based on religious beliefs, like Halal portfolios composed of funds that comply with Islamic principles. Or it could be centered around a fight against specific injustices, as is the case with our top SRI pick.

Founded by Wall Street veteran Sallie Krawcheck and tech entrepreneur Charlie Kroll, Ellevest aims to balance the investing field for women, who have been historically left out of the industry. And while most robo advisors offer Socially Responsible Investing portfolios, Ellevest has responded to the requests of their consumers. According to CEO Sallie Krawcheck, investors really value the commitment of the company as a whole, and they have consistently asked Ellevest to include SRI portfolios.

As a response, Ellevest has designed an “Impact Portfolio”, which includes companies that do right by women. This doesn’t mean other issues go unnoticed. According to the UN, issues like global warming and widespread poverty hit women the hardest due to the same inequality issues that Ellevest highlights. This means that the impact portfolios also invest in companies that care about lowering gas emissions and promoting equality and diversity in the workplace. 

Ellevest is also a company that supports women, hires women and is working toward increasing women’s participation in the financial industry. Krawcheck told us that “at Ellevest, we have a highly diverse team. First, because that’s just who we are, we reflect our user base.” She also explained that the research shows that diversity leads to better productivity and that their results reflect that.  

So not only are their prices and features competitive, but they educate investors and put their foot forward in the name of fairness. If you want to make an impact, Ellevest should be on your shortlist.

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Personal Capital review

Best for Serious Investors

Screenshot PersonalCapital.com, November 2019

Management Fee

Minimum Deposit

Average Expense Ratio

Tax Loss Harvesting

Human Advisors

SRI

0.49-0.89%

$100,000

0.08%

Yes

Yes

Yes

 

Personal Capital doesn’t like being called a robo advisor—they call themselves a digital investment platform or a digital wealth manager. Either way, if you want to invest more than $100,000, this terminology shouldn’t bother you, because the perks are more than enough to make you feel good about your investments. They have what they call a Financial Dashboard—which is completely free—where you can integrate all your accounts from checking to retirement, track your spending and income, see your net worth, and even get recommendations to increase your earnings or savings.

Then they have their Wealth Management service. This will cost you 0.89 percent of your investment, but it can go down to 0.49 percent after the first $10 million. And as your account rises in value, so do other benefits. For your first $200,000, you get unlimited access to planning and financial advisors. After that, you’ll get two dedicated financial advisors, plus specialists in different areas of the market that will help you balance your portfolio and allocate your assets properly. When you cross that million dollar mark, you’ll get access to their Investment Committee, including Personal Capital’s Chief Investment Officer. You also get access to a retirement specialist and some private investing options.

It’s expensive and the minimum is very high, but this is for individuals with high net worth who want more human guidance to handle their wealth. It’s also worth noting that their team of investment experts includes Nobel Prize winner Harry Markowitz, the father of Modern Portfolio Theory.

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OTHER GREAT ROBO ADVISORS

Good for Halal Investing: Wealthsimple

The Canadian company Wealthsimple is a bit expensive, but it offers something anybody seldom does at that price: Halal investing. In addition to their regular Socially Responsible Investing portfolio that favors companies who engage in environmentally responsible practices and treats workers fairly, they also offer a portfolio that complies with Islamic principles. Since these also align with most non-Islamic moral values, Halal portfolios have proven attractive for people outside of the religion as well.

Good for DIY Investing: M1 Finance

M1 gives the feeling you’d expect from a robo advisor—it’s cool, it’s slick, and it offers little to no human interaction. That might sound like a disadvantage to some, but to others it is a world of opportunity and customization. You can build your own portfolio and, unlike with other robo advisors, even invest in specific stocks like Tesla or Facebook. There are also pre-set “Expert Pies” that imitate and follow the portfolios of financial experts across the industry. However, it doesn’t have a lot of bells and whistles, and it doesn’t have access to financial advisors. This one is for the DIY investors looking for a bargain who want to have some fun while getting ready for their big milestones, like sending their kids to college or buying a home. 

Good for Supporting Small Businesses: Worthy Bonds

Worthy Peer Capital is focused on lending money to small businesses. You, the customer, get a chance to invest in those bonds. For those who like to put their money in the hands of small business owners and support the local economies across the country, Worthy is a great vehicle. 

Keep in mind, though, that Worthy is not SEC-registered or SIPC-insured. Also, you can’t choose what businesses are lent the money. Think of it as a small business portfolio that aligns with your values.

Good for 401(k) Management: Blooom

Blooom specializes in managing employer-sponsored retirement accounts. This includes: 401(k), 457, 403(b), and 401(a). According to their CEO, most retirement plans are incorrectly managed, so they decided to take care of it. It has a fixed price, and though its features are limited, since it’s so specialized, it can help you manage your retirement accounts more efficiently.

Our Research

More insight into our methodology

The surge of robo advisors has addressed many of the issues people faced when trying to invest, such as the high cost, the hefty minimum investments, and lack of experience or knowledge about the market. It made the process hard because all robo advisors offer essentially the same product and its main feature: passive investing with low cost and automatic rebalancing. Due to this similarity, we focused on the differences in cost among them and the additional features they offered for the  price. Our goal was to find: which robo advisor goes the extra mile for its customers.

Even though this technology is intended  for people to forego human financial experts, the reality remains that a lot of consumers are not experts themselves or have no knowledge of investing at all. For us, this meant that having financial advisors available was crucial, and four out of our five main picks deliver on that front. Some go as far as to have career planning services. Considering that robo advisors are very attractive for millennials, this and investor education were paramount in our search for the best.

Features

Robo advisors offer many different features meant to help you relax and remain hands-off from your investments. The most basic is automatic rebalancing, which they all do. Your portfolio can wander off and stray from its original allocation because either stocks or bonds significantly went up or down in value. This can deviate from the original risk you were willing to take because your portfolio becomes riskier or more conservative depending on the percentage of stocks versus bonds. When this happens, robo advisors rebalance it so it maintains the original percentage. Not all robo advisors rebalance your portfolio the same way, though, or in the same time period. Some do it monthly or yearly, and others do it depending on the movement of your money. Every company has a different reasoning behind their process, and it’s up to you to decide which makes you feel more comfortable.

Another important feature is tax loss harvesting. According to the IRS, if you have a loss on an asset, you can file it and pay reduced taxes because of that loss. Let’s put it this way: if you have two $1,000 stocks and one decreases, you’d sell it at a loss—and since that loss is considered a loss on your total assets, you’d get a tax reduction on the stock that didn’t decrease in value. It’s important to know that this has become a bit controversial among brokers. Some robo advisors don’t offer tax loss harvesting at all. Some of them have a proprietary way to minimize taxes because they think tax loss harvesting is risky, and they believe it just defers tax payment to later in life. Some think that it simply doesn’t do enough to justify it. Once again, there’s not a single flavor for everybody, so consider this when choosing.

There are many other different services you should look for when shopping for an investment platform. Consider the mix of funds they offer and the diversity of the portfolios they can set up after analyzing your risk tolerance. If social and environmental causes are important to you, look for Socially Responsible Investing portfolios (also known as Impact Investing in some companies) that only invest in environmentally friendly companies that treat their workers fairly. 


Lastly, it is very important to consider the level of access to human advisors a company provides, and whether you need support in making tough investment decisions or simply someone that can keep you informed throughout market fluctuations.

Pricing & fees

One of the main selling points of robo advisors as a whole is the dramatically lower price they offer when compared to traditional human advisors. Also, unlike with more traditional investment services, minimum deposits are generally very low. This makes their cost a top priority when choosing one. Management fees, that is, the cost they charge for offering you their services, range from 0% to over 1%, with most coming in at  0.25% or less. Minimum deposits can also range widely—from $0 to hundreds of thousands of dollars.

There are also different extra costs to consider, such as withdrawal and transfer fees. Most companies will charge for these, but these actions are also very rare, so it’s important to consider whether you’ll need your money soon, or if you have plans to move it elsewhere after reaching a certain amount. 

There are also trading fees, which are charged each time the system buys and sells index, mutual, or exchange traded funds. Some are entirely free, some charge for one or two, and some others charge for all, and they can charge up to $19.95. 

Another number to watch out for is the average expense ratio, which is the average of the fees charged by each fund you invest in. These are not charged by your robo advisor per se, but each company chooses different ETFs and some will be more expensive than others. These small amounts add up over time, and if you were to  look back 40 years from now, you’d certainly notice.

Lastly, we researched the features, and whether there were any costs attached to these. There are many basic features that are common across the board, but some robos charge extra for them—maybe a fixed price, or by raising your management fee. However, if there’s a feature specifically for your situation, chances are you’ll find a free option out there. 

Reputation

While some companies offer the ability to communicate with Certified Financial Planners as a basic feature, others only have this as part of their premium plans or charge a fixed price for each appointment. It’s very important to compare this between companies, because if you’re a beginner and want more hands-on consulting, it might be a determining factor in your decision. Unlimited access through text has become popular, but calling during business hours still seems to be the standard. Whatever the method, the ways you can access advice are important. Some companies have gone so far as to offer career planning services as well.

It’s crucial to make sure that your robo advisor of choice upholds a fiduciary standard. This means that they’ll look out for your best interest instead of their own. Fiduciaries are required to work for their client’s benefit, and are obligated to disclose any conflict of interest. This provides full transparency for investors and hold advisors accountable if they were to make ill-intended recommendations. The fiduciary standard with robo advisors becomes a bit blurry, since most of the work is done automatically through an algorithm. There are still some ways in which robo companies can betray that trust, though, and most of our picks have openly declared their obligation to act as fiduciaries. Be aware, however, that some companies will tiptoe around the word and say things like they “would act as a fiduciary would act” or will promote “fiduciary services” aside from their regular products. 

We also made sure that every company was insured by the Securities Investor Protection Corporation (SIPIC)  (with one exception). The SIPC insures your investments in case your investment company goes under and becomes insolvent. For some reason, most robo advisors will let you know that your investments aren’t insured by the FDIC, but won’t remind you that they’re still insured by the SIPC. Your robo advisor should also be a member of FINRA (Financial Industry Regulatory Authority) and the SEC (U.S. Securities and Exchange Commission), the main regulatory agencies in the investment industry. If it’s a FINRA member, you can go on BrokerCheck and see whether it’s had any legal issues. We did that already—and those with too many complaints were left out, don’t worry—but we always encourage you to go the extra mile to keep your money safe.

Helpful information about Robo-Advisors

What is a robo advisor?

A robo advisor is a relatively recent digital tool that helps everyday people with their investment goals. Traditional investing requires a professional human intermediary to manage a portfolio and balance it on a regular basis. On your own, it requires a LOT of know-how. Robo advisors aim to eliminate the need for human intervention in order to be more up-to-date, more consistent, and give investors a hands-off experience by designing investment strategies algorithmically. 

Robo advisors measure the risk you’re willing to take on, your general budget, and the goals you’ve set for your investment gains. Depending on these factors, the automated system will invest your money in a diversified portfolio fit for your specific characteristics as an investor. Most robo advisor algorithms are based on Harry Markowitz’s Nobel Prize-earning Modern Portfolio Theory, which optimizes investing by reducing risk and maximizing rewards through diversification and strategic asset allocation. 

Investing 101

Essentially, investing is the practice of buying shares of companies (stocks) or debt (bonds) and selling them over time to make a profit. It becomes more complicated as you diversify the amount of stocks or bonds you own in order to build a portfolio that reduces your risk should some of those securities lose value. However, you can diversify without much trouble when investing in mutual funds, index funds or exchange traded funds, which already contain a diversity of securities. Currently, the process has become even more accessible thanks to products like online stock brokers and robo advisors. 

The State of Investing

Although millions of Americans already invest in the stock market through their 401k and IRA accounts, many still shy away from investing on their own.

Why is this so? There is, of course, the fear caused by the recent market swings, especially the 2008 crash. 

But when it comes to younger generations, there are also other factors in play. Gerri Walsh, senior vice president of Investor Education at FINRA, told us that a survey done by the agency revealed that most millennials simply “don’t know where to start.” The lack of financial education has played a big role in low participation in the stock market. Walsh also mentioned that when financial education programs are incorporated as a requirement for graduation, students show better credit card behavior and are more mindful when incurring in debt such as student loans.

Dr. Vicki Bogan, professor of Behavioral Finance at Cornell, believes that many people face another important obstacle—mainly, financial and racial inequalities. Bogan explained: “Research has found that one of the key indicators of whether or not you participate in the stock market is whether or not your parents did. Now let’s think about racism and discrimination historically in our country. We’re coming from a place where people’s parents probably didn’t participate in the stock market because they didn’t have adequate resources for a host of wealth inequality reasons. Now that somebody may have adequate resources to participate in equity markets, they may not have the background or the familiarity with it because their parents weren’t participants.” 

In other words, because historically lower income families have not been able to participate in the stock market or any part of the investment industry, this lack of familiarity has been passed down to today’s potential investors. This makes financial know-how even more important. As Gerri Walsh told us,  more financial education in institutions like high school and college might help close this gap.

How Can Robo Advisors Change the Investing Landscape?

Robo advisors lower costs drastically to make investing far more accessible for people other than the wealthy. The automated services can also make it less threatening to people who aren’t very knowledgeable about the market. And many robo advisor companies offer educational resources to help you understand the way everything works. Some also provide access to financial advisors at no extra cost, whereas finding that service outside of the app would be rather expensive. 

As with any financial tool, there are some things to watch out for with robo advisors, but the automated, low-cost platforms are a step toward equal access to investing tools and information that only the wealthy used to have. 

Should I Invest?

There’s no way around it—investing is risky. However, the fact remains that “investing is one of the best ways to grow your assets over time,” said Walsh. By taking on some risk, you can expect higher returns from investing than from even the highest yield savings accounts, which have historically topped at under 3 percent. Investing for retirement is important and useful if you want to ensure your well being further on in life, when you won’t be working and possibly be in an unpredictable financial situation. Keep in mind, though, that there will always be risk and that investing requires patience. Trading and investing for short-term wealth is a different ballgame.  

How do I Invest?

How you invest will greatly depend on your financial situation. Before you begin, it’s always recommended that you have cash savings as an emergency fund in the case of unemployment, medical bills, or other unexpected events. You should also consider your debt, especially if it’s high-interest, like credit card debt. Take care of those financial strains first, then start investing some of your monthly leftover money.

You can invest in stocks, which are shares of a company;  bonds, which are loans given out to big institutions; or in a share of a fund, which is a collective, diversified portfolio that already contains stocks, bonds, commodities (such as gold or oil) and even real estate. 

Among these funds, you’ll find actively managed mutual funds and index funds. Mutual funds can be actively managed, that is, the investor hires a financial professional  to build and manage an effective portfolio for them. They can also be what is called index mutual funds. An index mutual fund imitates a market index, like the S&P 500, which represents the 500 biggest companies in the United States. An index mutual fund is passively managed and it simply follows the index. This passive management means that, instead of studying the market and consistently buying and selling, the portfolio’s contents only change when the index itself changes. ETFs, on the other hand, are similarly organized, but they are actively traded as if they were stocks.

Walsh recommends that you begin with something like these mutual funds, because, as mentioned, they provide instant diversification, which reduces risk while delivering good returns. Otherwise, diversifying a portfolio would be too hard for an individual: “You would have to own dozens and dozens of individual stocks that represented different sectors of the economy, and mutual funds, often by their nature, are investing in hundreds of stocks,” added Walsh. This, too, will depend on your knowledge of the market and your will to actively manage your own portfolio. In the case of robo advisors, almost everything is automated and all portfolios are instantly diversified.

 

Terms to know

FINRA—Financial Industry Regulatory Authority

FINRA is a nonprofit, regulatory organization that oversees securities (stocks, bonds and mutual funds) nationwide. As FINRA describes, their job is “making sure the broker-dealer industry operates fairly and honestly.” Again, this is not a government agency, but a nonprofit organization that holds up companies to regulatory standards.

SEC - U.S. Securities and Exchange Commission

The SEC is the government agency tasked with protecting investors from fraudulent practices. Almost every aspect of investing must be registered with the SEC, and they have the authority to investigate complaints, sue, and fine companies that run afoul of securities laws.

FDIC - Federal Deposit Insurance Corporation

It protects consumers when their financial corporations fail them. If your bank goes under, the FDIC is the agency that will help you recover your money. The FDIC covers deposit accounts such as checkings, savings, IRAs and 401(k)s. It does NOT insure investments.

SIPC - Securities Investor Protection Corporation

Unlike the FDIC, the SIPC is not a government agency. It is a nonprofit organization—similar to FINRA—founded by companies. It covers an investor’s losses  if their brokerage firm were to go under. It is important to note that it does NOT bail out bad investments; it insures whatever amount was in the investor’s account when the company went bankrupt, when the money was stolen, or similar situations. So, if  you went all in for MySpace, that’s on you.

Fiduciary Standard

The fiduciary standard is the standard regulated by the Securities and Exchange Commission (SEC). This establishes that investment advisors have to look out for their clients’ best interests instead of their own.

CFP - Certified Financial Planner

Certified Financial Planners are certified by the Certified Financial Planner Board of Standards, and they are held to a rigorous standard. They take a large amount of courses and must dominate several financial topics in order to earn the certification. Having CFPs available to investors is a very important feature for robo advisors to have.

RIA - Registered Investment Advisor

RIAs are investment advisors registered with either the SEC or state regulators. They are supposed to uphold the fiduciary standard and are required to disclose conflicts of interest.

WHAT TO WATCH OUT FOR

Fiduciary Responsibility and Robo Advisors

Fiduciary responsibility is a big one here. From the get-go, robo advisors can seem less prone to having an agenda than human financial advisors, since they’re based on an automatic algorithm to do your investments. Nonetheless, the laws and licensing on robo advisors are very unclear, and unless explicitly stated, they are not necessarily fiduciaries. Also, while they might not have individual agendas like financial advisors, , robo advisors could be programmed to follow their company’s agendas  of their companies algorithmically. 

Human advisors aren’t always fiduciaries either, though, and there are many licenses and titles that allow them to earn commissions on all your investments. 

However, do not confuse the suitability rule with fiduciary duty, as they are not the same. Suitability is a different set of standards, and they are not subject to nearly as much overview as fiduciaries. You need to do your research and contact any new company you find to make sure they act as a fiduciary. This will protect you from conflict of interests your advisor might have. If they are not accountable under the fiduciary standards and are allowed to earn commissions directly from your investments, it is possible that their recommendations benefit them more than you.

There are limits to how much guidance you can get

The human element is still irreplaceable when it comes to guidance and organic financial education. The fact remains that people can offer you support during tough economic times in a way that an algorithm can’t. . They can also explain better why times are tough and why you should or shouldn’t make certain decisions with your investments. Robo advisors, even though they “do” everything for you, will still leave a lot of things in your hands, especially the work of understanding how everything works.

Some banks or robo advisor companies have hybrid products with brokers and financial experts overseeing your portfolio, so take a look at those if you like to be in direct contact with experts. Also, some completely automated companies still offer access to experts if you need advice or help understanding the movements your money is making. 

Uncertainty in the market

The first robo advisor, Betterment, was created in 2008. Does that date ring a bell? It was founded right after the huge market crash of 2008, and it started actually working and investing in 2010. This means that no robo advisor in history has experienced a crash like that, so nobody is really sure how they’d react. This uncertainty is important to keep in mind if you are afraid of the stock market. As stated before, some of these companies do have CFPs and expert traders on payroll for those precise situations. Professor Bogan highlights personal preference when selecting a robo advisor or a human advisor, so don’t ignore your gut. If you feel safer talking to a human being and being able to ask specific questions, either go directly with a human advisor or make sure the company you choose provides access to one. 

There is also precedent to certain actions robo advising companies can take when the market seems volatile. After the Brexit vote, Betterment halted trading. For some, this was a good decision to keep long-term investments secure; for others, it was a lost opportunity to buy bonds at a much lower price. Where you fall on this is up to you, but your decision when choosing a robo advisor as opposed to a human advisor or a DIY option should be deliberate and purposeful.

Trading limitations

If you want to buy and sell specific stocks and be consistently on top of the market, robo advisors may not be for you. Even though you have the service on your fingertips, most robo advisors have predetermined portfolios. You may be able to change these portfolios by changing your risk tolerance, or by simply choosing different portfolio offers, but you can’t design a portfolio of your own. If this is what you want, you may want to check out online stock brokers instead, which is a very similar service but with more active participation from you.

The costs can add up

Who doesn’t want to save as much as they can, especially if you’re investing precisely for that reason? A 25-year-old that earns less than 50k a year might be afraid of investing because 1) they feel like they don’t have enough money and 2) maybe they don’t have the knowledge to do so. Robo advisors take care of both of these things, and at a far lower price point than human advisors. Some of the options we provide here offer free management. What is important to watch out for is the underlying fees of funds. Index, mutual, and exchange traded funds charge a small annual fee that accounts for service and maintenance of the fund. FINRA provides a very useful tool to analyze all these costs.

FAQs about Robo-Advisors

What is tax-loss harvesting?

Selling a security that has depreciated from its original value as a loss to offset the tax liability of securities sold for gain is called “tax loss harvesting.” Investors are able to offset taxes on both gains and income by realizing the sale of securities that have loss some of their value. As securities are “harvested, ” a robo-advisor can replace the asset with a similar one, maintaining the target asset allocation for the particular portfolio.

What if I want to take my money out?

In a brokerage account, assets that are in the form of stocks, funds, or bonds must first be sold in order to receive their cash value. Trades are completed usually within the same day, but the funds are not always immediately accessible. Portfolios managed by robo-advisors may take one to three business days before funds are settled and accessible to the investor. If the value of an asset appreciates when it is sold, the profit is a “gain.” The sale of an asset that has depreciated is sold at a “loss.” Both gains and losses have tax implications as capital gains (or losses).

What's the difference between a robo-advisor and stock management applications?

Stock management apps and websites give investors the ability to track the performance of their portfolios in real-time and can be synced to their brokerage accounts. Robo-advisors not only actively monitor the performance of a portfolio, but they can re-balance the assets within the portfolio to reflect the individual profile of the investor. Robo-advisors are both monitoring the stock market and actively making changes to the investments in an investor’s portfolio.

What is SIPC insurance?

SIPC (Securities Investor Protection Corporation) is insurance that covers individual brokerage accounts up to $500,000 ($250,000 in cash) in the event of the failure of a brokerage firm. The insurance protects the assets at the time of liquidation of the firm and serves mainly to make sure that the securities and cash are transferred either to a new firm or to the individual customer directly. SIPC does not insure the original value of the securities; that is, the value of assets in a brokerage account may lose value and SIPC does not protect consumers from the loss of the value in assets due to the fluctuations in the market. It will assist consumers to recover the assets in case of a brokerage firm bankruptcy.

Is my money safe with a robo-advisor?

Robo-advisor technology automates the management of a portfolio of investments. These stocks, bonds, or funds do not have guaranteed returns and may lose their initial value. When an asset is sold, the funds will be available as cash following the settling of the trade. Should the brokerage firm of the robo-advisor become bankrupt, a firm covered by SIPC insurance will protect the assets and make sure that they are returned to the investor or transferred to another brokerage firm.

Who can use a robo-advisor?

Not every brokerage firm offers a robo-advisor. But if a firm does offer automated portfolio management, anyone qualified to open up a brokerage account can have a portfolio managed by a robo-advisor. Robo-advisors take an active role in choosing which assets will be in a portfolio and in continually balancing the portfolio.

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