2018.09 ThinkTank

Posted on September 30, 2018

Here at Backend Benchmarking we have been closely following the robo advice industry for over two years.  Our project started by opening accounts at the largest robo advice providers so we could track their performance, trading, and other activities.  Since the project first started, we have grown to track more than 50 accounts across the industry and have become the only comprehensive provider of performance on different robo advice platforms. Our results are published quarterly in The Robo Report™.  Most recently, we expanded our project to also rate the services, customer experience, financial planning, and other features of the robo advice providers. These qualitative features, combined with performance and other quantitative features, were recently released our first ever Robo Ranking™.  Throughout the process of ranking the robos, we took a deep dive into each platform. While full ranking results can be found at theroboreport.com, our thoughts on some of the largest players in the robo advice marketplace can be found below.

Vanguard Personal Advisor Services: Vanguard takes the top spot in our Robo Ranking™.  Vanguard offers a compelling product: professionally managed accounts, rebalancing, dedicated live advisors, full-service financial planning, and a portfolio that has outperformed over the past two years, all for a management fee of 0.30%.  Vanguard’s time-tested, low-fee, indexing approach to investment management has proven successful over our two-year tracking period. Dedicated advisors can provide robust financial planning services and help clients stay on track to meet their goals.  Although many of the Personal Advisor Services clients were existing Vanguard clients, investors have been voting with their wallets as Vanguard has approximately three times the assets under management as their next-largest rival. The value proposition of Vanguard Personal Advisor Services is undeniably compelling.  Vanguard’s high level of service and strong performance propel them to our top spot. Vanguard scores well in most categories, but by holding all proprietary funds, and not making the performance and construction of their model portfolios available online (among other criteria), they lag in the transparency and conflicts of interests category.  Another drawback of Vanguard’s service is their online experience. Those seeking a modern online experience with innovative digital planning and other tools should consider other winning providers.

Betterment: Betterment is a pioneer in the space and continues to stay on the cutting edge of user experience and technology.  Their website is intuitive and helpful. They have simple but high-quality digital financial planning tools, while offering access to more in-depth planning and advice at their premium level.  Betterment helps users understand the relative performance of their accounts by allowing users to compare their portfolio to benchmarks. Additional features, such as fractional shares keeping even small accounts fully invested, tax-loss harvesting, availability of most account types, and lack of proprietary investment products, all helped Betterment achieve runner-up.  Although Betterment’s performance lags behind the group over the long term, their breadth of services and features propel them to the second overall score in our ranking. Betterment has a well-rounded, quality platform and a strong value proposition to investors.

SigFig: SigFig has a nice user interface and customer experience.  Combined with the ability to aggregate outside accounts, SigFig can give you a holistic view of your all of your investment and savings accounts.  Their new retirement planner is basic, but has good features and provides advice on how to adjust a user’s plan to stay on track towards retirement.  Their digital services comes with access to live advisors when clients need more guidance than the digital tools can provide. They have a low minimum of $2,000 and a fee in line with other low-cost robo advisors, at 0.25% annually.  SigFig has also done well in our two-year performance numbers, coming in second only to Vanguard when looking at returns above or below the normalized benchmark and the Sharpe ratio.

E*Trade Core Portfolios: E*Trade has a low-cost robo similar to other offerings from incumbents.  Their digital platform has nice performance and asset allocation charts. There are some good retirement planning tools on E*Trade’s website, but they are not well-integrated with the accounts view and represent a more traditional retirement calculator.  It can be a little tricky to find the planning tools on the website, and progress towards financial planning goals is not displayed with the account balances like many other platforms. That said, once the planning tools are located, they do a good job of helping users determine how much to spend, modeling social security, and other tasks, making for a quality planning experience.  E*Trade Core Portfolio customers can pick up the phone to get help from live specialists. E*Trade does provide more comprehensive services with other offerings if users feel like the advice available through Core Portfolios is not robust enough. E*Trade has a lot to offer, but the overall digital experience is not well-integrated and requires some navigating to find features. Tax-loss harvesting is not offered with Core Portfolios.

Schwab Intelligent Portfolios/Advisory: Schwab provides the best user experience of the robo advice products offered by discount brokers.  Their Intelligent Portfolios online portal has a fresh look and with easy and intuitive navigation.  They offer some very basic digital goal planning, with increased functionality and access to live advisors when a client upgrades to Intelligent Advisory.  Schwab offers their digital-only Intelligent Portfolios product at no management cost, although they do mandate a large cash position, which we believe helps them offset the cost of offering the product for free.  Overall, Schwab’s digital advice product suite is a strong offering from an incumbent firm.

Personal Capital: We find the independent robos often have higher quality digital experiences, and Personal Capital is a leader for online experiences and tool kits.   We like Personal Capital’s intuitive and flexible digital planning tool the best in our universe. Whether a user is looking to build a single-goal plan or a complex multi-goal plan, they will find this financial planner capable of handling their needs.  Life, income, and wealth rarely follow a straight path, and Personal Capital’s planner can model different cash flows and events to better reflect real-life complexities. Rental income, pensions, selling a home, renovating a home, and other cash flows can be added into this planner.  Personal Capital makes this tool available not only to their paying clients, which requires a $100k minimum, but to anyone who wants to sign up and link their external accounts for free. In this category, Personal Capital is the clear winner.

Wealthfront: Wealthfront also has strong financial planning tools where multiple goals can be built.  Wealthfront’s Path tool integrates multiple goals into a single plan and has nice features for specific goals, like helping a user determine an affordable purchase price for a new home.   Each one of these goals can be tracked, and users are given a probability of success as well as the amount of savings needed to keep their goal on track. Wealthfront also has good features for those looking to build a plan around funding their own, or a child’s, education.  Integration of multiple goals into a single financial plan, flexible tools that help guide users through building goals, and goal-planning widgets designed for specific types of goals makes Wealthfront a provider with one of the best digital financial planning tools available.

Acorns: Although Acorns did not score well in our ranking, they are proving to be very successful at attracting young, low asset, and other clients in our universe.  One area where Acorns excels, but is also difficult to measure, is encouraging positive behavior when it comes to saving and investing. So despite their low score, we believe Acorns is one of the best platforms for first-time investors.  Acorns main feature is Round-Ups, which invests a small amount of money each time a linked debit or credit card is used. Acorns takes the difference between the purchase amount and the nearest dollar amount and deposits that amount into a investment account for the user.  Although this typically adds up to relatively small sums of money, it is a great feature to help users get in the habit of saving and investing regularly. Acorns has designed their platform with a mobile-first mentality and simplified the user interface, lowering the mental barriers to investing for those that have never invested before.  Their platform has proven successful at attracting users, and although Acorns manages less total money than the other leading robos, they have the most clients by a wide margin. For those who have not invested before, Acorns is a great place to start. All of this said, we need to point out one aspect of their platform: Acorns’ users pay between $1 and $3 a month in fees, depending on which features they enroll in, for all accounts under $1 million.  For users with low account balances, this can mean the fee paid to Acorns is a very large portion of their balance. Using simple math, a $100 account is charged $12 a year, which is roughly equivalent to a 12% management fee. Users need to be aware of this cost if they plan on carrying only a small balance in their accounts.

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