What is a Robo Advisor?
A robo advisor is an investing advisory and rebalancing service where recommendations and trade execution are delivered programmatically. This post compares the costs and benefits of using a robo advisor compared to a human investment advisor. It also lists the top robo advisors in the US and Canada.
Investment Process with a Human Advisor
Many of us are familiar with human investment advisors. An investment advisor will meet with clients to determine their values, investing objectives and risk tolerance. This is typically done by filling out questionnaires and having conversations. Once the investment advisor has that information, they will make recommendations about what the client should invest in.
As time goes on, the advisor will provide the client with additional recommendations including changes to the composition of the client’s portfolio, re-balancing, utilizing tax loss, and other topics. All this is done “manually” in so far as the advisor will communicate with clients over e-mails, phone calls, meeting face to face and over video calls.
Investment Process with a Robo Advisor
A robo advisor operates differently from a human advisor. A robo advisory service is designed by investment advisors who deliver their service digitally. This means a robo advisor will discover the values, objectives and risk tolerance of clients using web-based forms. Then, a robo advisor will recommend a portfolio of investments from a universe of low-cost ETFs in a makeup that reflects the investor’s objectives. Subsequently, portfolio rebalancing is done by a robo advisor programmatically, based on pre-determined criteria.
Consequently, robo advisors are typically much cheaper than human advisors. Where many human advisors charge anywhere from 0.50% to 1% per year (or sometimes more if certain mutual funds are used), robo advisors might charge half or less of that cost.
What is Better For You?
If you’re someone who gains peace of mind by talking to another human being about your finances, then a human advisor will probably be more suitable for you. But, if public market investing indexes are efficient enough where active management (including asset allocation decisions) doesn’t provide any value (or even negative value), then robo advisors might be something for you to consider.
Here are lists of US and Canadian Robo Advisors for you to consider:
| US Robo Advisors | Fee |
| SoFi Wealth | 0.00% |
| Schwab Intelligent Portfolios | 0.00% |
| Vanguard Digital Advisor | 0.15% |
| Acorns | 0.24% |
| Fidelity Go | 0.24% |
| SigFig | 0.25% |
| Wealthfront | 0.25% |
| Betterment | 0.25% |
| Morgan Stanley Access | 0.30% |
| E-Trade Core Portfolios | 0.30% |
| Ally Invest | 0.30% |
| Wells Fargo Intuitive Investor | 0.35% |
| Marcus Invest | 0.35% |
| JP Morgan Automated Investing | 0.35% |
| Ellevest | 0.36% |
| Merril Edge Guided Investing | 0.45% |
| FutureAdvisor | 0.50% |
| UBS Advice Advantage | 0.75% |
| Capital One Investing | 0.99% |
| Canadian Robo Advisors | Low | High |
| Justwealth | 0.40% | 0.50% |
| BMO Smartfolio | 0.40% | 0.70% |
| CI Direct Investing | 0.35% | 0.60% |
| iA WealthAssist | 0.70% | |
| Nest Wealth | $5/mo | $150/mo |
| Questwealth | 0.20% | 0.25% |
| RBC InvestEase | 0.50% | |
| Smart Money Invest | 0.80% | |
| VirtualWealth | 0.35% | 0.60% |
| Wealthsimple | 0.40% | 0.50% |
| ModernAdvisor | 0.35% | 0.50% |
Robo Advisor for Wealthy Investors?
If you have a $100 million-dollar portfolio, is a robo advisor a practical option to manage your investments? Probably not.
Investors with more than $100 million in their investment portfolio can obtain personalized investment advice for less than what robo advisors charge. This means, investors with large portfolios can receive all the benefits of a robo advisor with some additional benefits. One, having portfolios made of securities that are screened for your individual moral values and two, geting a team of human advisors to rely on.
Conclusion
Both robo advisors and human advisors provide value to clients by recommending investments, even if this means a portfolio of low-cost ETFs. However, a human being still needs to decide which ETFs to include in a portfolio because this cannot be done by a computer (yet).
But what about automatic rebalancing? An argument can be made that regular rebalancing is detrimental to an investment portfolio as it forces investors to sell their best investments in favour of their worst and at the same time increases taxes by realizing gains more often. In this sense, robo advisors provide a drag on a portfolio’s returns by rebalancing and by also adding an additional layer of fees.
Many DIY investors with simple investment objectives such as “saving for retirement” can achieve their goals using low-cost ETFs. By using ETFs from Vanguard Canada, RBC iShares, and BMO ETFs, Canadians can achieve fees below 0.10% per year. These ETFs will not account for your moral values or income requirements, but they will provide investors with an average rate of return (by definition). Your only responsibility as an ETF investor is choosing the ETFs and buying more whenever you add cash to your account. If this seems daunting to you, then you should use an advisor (either a robo advisor or a human advisor).