Roboadvisers Target the New Universe of Retail Traders

Why It Matters

With greater choice may come greater risks, since many studies have shown that tinkering too much with a portfolio tends to hurt returns rather than improve them. So when offering access to more investments, robos may put in guardrails to discourage too much speculation.

At Wealthfront, for example, customers whose funds are part of the more than $27 billion in assets under management can’t allocate more than 10% of their portfolio’s value into one of the crypto funds. Wealthfront, along with Betterment, which has $32 billion in assets, were early robo pioneers, but their assets are dwarfed by later entrants onto the scene such as Vanguard Personal Adviser, which has more than $243 billion in assets, and Schwab Intelligent Portfolio from Charles Schwab, which has $64 billion in assets. A far newer entrant on the scene: Marcus Invest by Goldman Sachs, which launched in 2021.

The average fee for a basic account is around 0.35% of assets, according to robo-tracker Backend Benchmarking, although SoFi offers a free service. Many robos offer premium services, which may bring access to certified financial planners. Fees tend to start around 0.30% and account minimums can be in the tens of thousands. Vanguard's premium service charges 0.30% and requires a $50,000 minimum; Schwab Intelligent Portfolio's premium product requires a $25,000 minimum, has a $300 initial planning fee and charges $30 a month.

Robos started with simple low-cost diversified ETF portfolios divvied up among asset classes keyed to a person’s risk tolerance, time horizon and goals and automatically rebalanced. They have since added many sophisticated financial planning tools and services, including tax-loss harvesting, access to initial public offerings and more. Some, like SigFig, focus mostly on investments; others, like SoFi, want to be a one-stop shop for all of your financial needs, from refinancing student debt to investing in fractional shares to buying into an IPO.

For many years, companies that offered robo advising were leery of allowing too much human tinkering with the low-cost ETF portfolios that were their core offering. The approach was largely “set it and forget it” investing in passive, low-cost index funds or ETFs.

Now the pendulum is swinging toward allowing users more personalization and flexibility. This past year, Wealthfront gave clients access to a wider array of socially responsible investments, as well as more of Cathie Wood’s ARK funds, the Grayscale Bitcoin Trust BTC and Grayscale Ethereum Trust. The two crypto funds, which carry high fees of 2% and 2.5%, respectively, are the most popular funds on Wealthfront’s platform.

Robos are getting creative with new services. Wealthfront’s “Self-Driving Money” divvies up cash between different accounts for different pre-set goals, and will alert customers if they have excess cash that they might want to invest. Another new feature rolled out recently is Edelman Financial Engines’ “Downside Defender,” where clients set a minimum level for their account value, and as their portfolio approaches that number, the portfolio automatically sells stocks and buy bonds.

Even low-cost index fund giant Vanguard is taking a more active stance, announcing recently that it would launch three new active funds later in 2021 that would only be available on its its hybrid robo platform.