Best Robo-Advisors: 2016 Top Picks

Advisors, Investing

In the space between DIY investing and personal — but expensive — financial advisors sits the robo-advisor, a crop of companies that manage client portfolios via computer algorithms, cutting costs and passing the savings on to investors. These online advisors have taken off over the last several years: There are currently a couple hundred firms in the race.

What is a robo-advisor?

The definition of a robo-advisor is an online financial advisory firm that leverages automation and algorithms to help manage client portfolios. That automation enables robo-advisors to offer investment management services to consumers for a fraction of the cost of a human financial advisor.

Investors may reap higher returns by using robo-advisors because of lower fees, combined with premium features like automatic rebalancing and tax-loss harvesting.

The bones of the services are often similar: Most use low-cost exchange-traded funds (ETFs) to build a portfolio, then rebalance that portfolio on a regular basis. Many provide elevated features, like tax-loss harvesting on taxable accounts. A few offer access to dedicated financial advisors.

To help you identify which service is best for you, we’ve selected the top robo-advisors for each type of investor.

The best robo-advisors overall

These robo-advisors have inexpensive management fees, a diversified ETF portfolio and reasonable account minimums.

Two robo-advisors stand out from the crowd: Betterment and Wealthfront. Both have low account minimums, easy-to-use interfaces and innovative features. The services differ in their fee structure: Betterment uses a three-tier pricing system, under which balances below $10,000 pay 0.35% (or $3 a month without auto-deposit). The fee drops to 0.25% for balances between $10,000 and $100,000, and to 0.15% for balances of more than $100,000. Wealthfront manages the first $15,000 completely free, then charges a flat fee of 0.25% on the rest. That free management makes the service cheaper on balances under $100,000; investors who cross that threshold will pay less at Betterment. But Wealthfront also offers direct indexing, a tax strategy that can close that fee gap on taxable accounts (more on this below).

Best robo-advisors for free management

These online advisors charge no management fee.

Let’s make one thing clear: Very little in financial services is completely free. Both WiseBanyan and Charles Schwab Intelligent Portfolios offer portfolio management free of charge, but the investments used — primarily ETFs — still carry expense ratios. But that’s true of all investments. Overall, you’re likely to pay less at these robo-advisors, but you should carefully consider features. WiseBanyan makes its money from paid add-ons: Tax-loss harvesting, which is beneficial for taxable accounts, is part of the package deal at many other advisors (including top choices Wealthfront and Betterment) but costs 0.25% here. Schwab uses many of its own funds in client portfolios, meaning those aforementioned expense ratios add to its bottom line — but it gives investors access to an impressive selection of 20 asset classes. Schwab also offers free rebalancing, and tax-loss harvesting is included on taxable accounts with balances of $50,000 or more.

Best robo-advisors for 401(k) management

These advisors will manage your employer-sponsored retirement plan.

Most robo-advisors manage IRAs and taxable accounts but leave you in the dark about your 401(k). These two advisors attempt to fill that hole. Blooom specifically focuses on management of employer-sponsored plans like 401(k)s and 403(b)s, charging a flat monthly fee of $5 for balances under $20,000, $19 for balances of $20,000 to $500,000, and $99 for balances over $500,000. A special promotion for NerdWallet readers qualifies them for a $4 a month fee for account balances of $20,000 or less, $15 a month for balances between $20,001 and $500,000 and $79 for balances above $500,000. The company works within the investments offered by your plan, and offers free analysis so you can test the service before signing up. Accounts are rebalanced every 90 days. FutureAdvisor manages an array of account types held at Fidelity or TD Ameritrade for a 0.50% management fee, but Fidelity 401(k) and college savings plan management is completely free.

Best for access to a financial advisor

These robo-advisors combine the lower costs of online investment management with a dedicated financial advisor.

If you’re not comfortable with a computer taking the reins, but you’re intrigued by the lower management fees involved, you might be interested in a hybrid service that pairs computer automation with human financial advisors. The best of these hybrid services come from Vanguard Personal Advisor Services and Personal Capital. Both have high minimum investments — $50,000 and $25,000, respectively — but offer personal service with customized portfolios and dedicated advisors. Vanguard’s management fee is more in line with the rest of the robo-advisor competition at 0.30% (it is subsidized, at least in part, by the use of Vanguard’s own funds in portfolios). Personal Capital’s fee is tiered by balance but skews high: Accounts with balances under $1 million pay 0.89%.

Best for minimizing taxes

Investors with taxable accounts will want a robo-advisor that offers first-rate tax efficiency.

Both Wealthfront and Personal Capital offer superior tax strategy for customers with taxable account balances that top $100,000. Wealthfront’s direct indexing service purchases individual securities rather than index funds or ETFs, zeroing in on tax-loss harvesting opportunities. The company says the service can add as much as 2.03% to annual investment performance (effectively canceling out the fee difference between Wealthfront and Betterment on taxable accounts of that size). Personal Capital also has the ability to use individual securities rather than funds on accounts with balances of $100,000 or more; it says its tax optimization services can increase returns up to 1% annually.


Best robo-advisors: summary

Robo-Advisor
Best
for
Highlights
Annual Fee
Promotion
Account minimum
Start investing
Wealthfront
Wealthfront
Overall
+
Minimizing taxes
Tax efficient direct indexing (accounts $100,000+)
0.25% of account balance
$15,000 managed free (NerdWallet readers)
$500
Betterment
Betterment
Overall
Goal-based tools help savings, guide asset allocation
0.15-0.35% of account balance
Up to 6 months free
$0
WiseBanyan
WiseBanyan
Free
Free management;
add-on services are paid
Free
n/a
$10 to open
Charles Schwab Intelligent Portfolios
Charles Schwab Intelligent Portfolios
Free
Trusted leader in financial services
Free
n/a
$5,000
FutureAdvisor"
FutureAdvisor
401(k)s
Manages Fidelity 401(k)s
for free
0.5% of balance; several services free
3 months free
$10,000 (premium service)
Blooom
Blooom
401(k)s
Manages employer 401(k) plans for flat fee
$5 to $99
per month
NerdWallet readers pay just $4 to $79 per month
$0
Vanguard Personal Advisor Services
Vanguard Personal Advisor Services
Access to financial advisor
Portfolios built on client-by-client basis with advisor
0.30% of account balance
n/a
$50,000
Personal Capital
Personal Capital
Access to financial advisor + Minimizing taxes
Hybrid service; some tools free; individual securities ($100,000+)
0.49-0.89% of account balance
n/a
$25,000

Arielle O’Shea is a staff writer at NerdWallet, a personal finance website. Email: aoshea@nerdwallet.com. Twitter: @arioshea.