Robotech

A robo-advisor could be your new financial planner

Over the past few years, fintech has emerged that has changed both professional and personal financial transactions. Platforms such as Patreon, Gemini, Venmo, and Apple Pay have become common ways to fund new enterprises, manage and purchase cryptocurrency, pay friends, and purchase goods. Now, the stage is set for further fintech disruption in the form of robo-advisors.

An investment platform that gets to know your tolerance for risk and financial goals based on information you provide, robo-advisors create a personalized portfolio for investors similar to the way financial planners have done in the past. The platform then uses an algorithm to rebalance the portfolio over time to stay in line with an individual’s profile. Assets are automatically bought or sold based on agreed upon levels of asset allocation and risk.

Why Robo-Advisors?

Robo-advisors offer an easy entryway to investing for people who are just getting started and do not have as much free capital to invest. Novice investors who are not savvy at reading stock charts and are less familiar with the concepts of ETFs and mutual funds have the opportunity to invest wisely thanks to the portfolio created by a robo-advisor.

Investors with less capital further benefit from robo-advisors in that there are low minimum investments — some can be upwards of $100,000 for experienced certified financial planners. Other perks traditionally only available to the wealthy, such as tax-loss harvesting which offsets capital gains taxes by selling some assets at a loss, are handled automatically by robo-advisors and available to every investor.

Additionally, robo-advisors are free from any conflicts of interest that may arise when human financial advisors are asked to push products when creating a portfolio. Not only that, while human advisors are only available during certain hours, robo-advisors are available anywhere there is internet access, at the touch of a button.

What to Consider

Despite some significant advantages, robo-advisors might not be the right fit for every investor. Often, goals in life and investing cannot be accurately summarized by answering a questionnaire. Human financial planners can add a degree of empathy and subtlety when personalizing a portfolio that is harder to find when using a robo-advisor.

Similarly, investors can be ruled by emotions and tempted to sell assets after a precipitous drop or chase a hot stock and buy it at its peak. Robo-advisors simply make the requested transaction whereas a flesh-and-bone advisor will take into account the feelings associated with the ups and downs of the market and help an investor avoid panicking.

Human financial planners are also more willing and able to help educate new investors. Financial advisors are able to explain the strategies behind their moves and suggestions, allowing their customers to gain a better understanding of how investment works should they decide to invest on their own at a later time.

Choosing a Robo-Advisor

Every robo-advisor platform offers unique advantages tailored to specific investors. Ultimately, the decision on which robo-advisor to use — if any at all — depends upon an investor’s individual goals and needs. Below is a look at five robo-advisors that are well on their way to disrupting financial services in 2019.

• Betterment – With no account balance minimum and an annual fee of 0.25 percent, it’s easy to see why Betterment is the largest independent robo-advisor platform in the world. In addition to portfolio management, tax-loss harvesting, and automated asset balancing, Betterment offers rollover and trust accounts, as well as 401(k), and IRA for preparing for retirement.
• Schwab Intelligent Portfolios – Offering a wide array of accounts from brokerage to trust to IRA, and more, Schwab charges a $300 initial planning fee and $30 per month. With that comes an expertly chosen portfolio of 53 ETFs across 20 asset classes and optional access to unlimited one-on-one guidance from a certified financial planner through the premium plan.
• Wealthfront – Boasting a 2.51 percent APY, Wealthfront has a low minimum investment of only $500 with a 0.25 percent management fee. It features daily tax-loss harvesting on all acounts and periodic rebalancing and the availability of lines of credit for accounts over $100,000. In addition to IRA accounts, Wealthfront also offers a college savings plan.
• Merrill Edge – The Merrill Edge programs offer a mix of human and robo-advisors. One option is Merrill Edge Self-Directed which has no minimum investment amount and offers access to investing research and “step-by-step guidance,” charging $6.95 flat fees for trades. The Merrill Guided Investing option features a portfolio that is monitored and rebalanced by professionals for a 0.45 percent annual fee with a minimum investment of $5,000.
• SoFI Automated Investing – No annual fees and a low minimum investment of $100 make SoFi a good choice for beginning investors. Investors also get access to automatic portfolio rebalancing and the counseling of certified financial planners. Customers who sign up for a $20 recurring investment also have access to discounted loans and career coaching.