Managing your investments requires specific skills or the use of smart management tools. When you have just started investing, you will not be able to grasp all the nuances necessary for getting high returns on your capital. Furthermore, if you are considering a diversified investment portfolio and want a hassle-free approach, the convenience and expertise of a robo-advisor become crucial.

Despite coming at a cost, using professional help in streamlining and managing your investments is something that you cannot ignore. With several such digital platforms available now, knowing what to look for in them will help you make the right decision. Here are a few things that you should consider prominently while shopping for a robo-advisor.

Management Costs

Management Costs

At the outset, you need to understand that robo-advisors are chosen for their affordable costs when compared to using a financial planner or advisor. The digital platform costs are based on several factors, which are listed below.

Account minimum to start with

Many services do not stipulate a minimal limit for starting an account. The annual charges can start from a minimum of 0.25%. So, for an investment value of $10,000, the charges per year will be $25. The cost includes investment management and rebalancing costs.

For specialty services or portfolios, the charges may be up to 0.89%. Some services, such as Charles Schwab and Ally, have zero charges, but in general, the typical range is from 0.25% up to 1%. However, this is not the only charge you have to consider.

Here is a table depicting the fee structure of some of the top robo-advisors now:

Robo-AdvisorAccount Minimum  Fees
Interactive –Advisors$100 to $50000.08-1.5% annual
Personal Capital$100,0000.89% to0.49% 
M1 Finance$1000%

Management fees

Fees are charged for managing small ETFs as well as the more considerable ones. The money, however, is paid to the particular fund instead of the robo-advisor. A very minimal amount is required, starting from 0.04% up to 0.10%.

Setup charges

Set-up charges are sometimes included, which is a one-time process. For instance, LearnVest charges up to $399 for the first review, in addition to a monthly charge of $19. 

Transaction costs

Most often, transaction costs related to trading or different investments will also come under the management cost. However, income is generated by the robo-advisor from your account money that is not invested. A small interest on this amount will be paid to you.

Types of services offered

Types of services offered

With many digital platforms offering their services for free, why should you choose a paid one? The charges are mostly based on the services provided. The free offers may not cover all the services you are looking for.

With the right services, you can increase your potential returns and compensate for the fees you pay towards the management cost.

So, here are some services that are offered by different digital platforms, which you can consider:

1. Standard services include tax-loss harvesting, re-balancing, and proper allocation of the portfolio, all of which are done based on the risk tolerance levels and specific investment objectives you have.

2. Advisor offers specific services vary and can include: 

  • Direct indexing services on larger accounts worth $100,000 and more to enable higher tax advantage through individual securities investments. This service is offered by Wealthfront.
  • Linking cards. Some platforms, like Acorns, link all your debit and credit cards to combine the purchases and invest the spare change in your portfolio.
  • Lending services. These are included by companies such as Wealthfront and M1 Finance. 
  • Cash management and checking account services – these are also part of the services offered by some companies. They come in handy when you want to have all your expenses and investments under a single roof.
  • Career advice. Companies like Ellevest provide career consultants if you are looking for a change in your career.
  • Encouragement to save. Betterment uses objective-based finance tools that encourage you to increase your savings.
  • Socially responsible investing. There are a few platforms that offer socially responsible options for investing your money. 
  • Retirement accounts management. Rebalance IRA specializes in retirement accounts while advisors like Blooom help optimize your 401(k) investment

Other than the above-mentioned services, you also get robo-advisors that provide in-house funds for investing or funds belonging to diverse issuers, so you are able to create a diversified portfolio of your choosing. 

But, make sure you look into the type of funds or ETFs offered and consider factors like whether the funds are third-party or proprietary funds. Also, the platforms should give due diligence to the fund selection.

Robo-advisors vs. traditional human Advice

Types of services offered

Some platforms incorporate human advice, in addition to computer-aided investment management. This is accomplished by employing financial advisors on a rotational basis or the use of dedicated advisors, which will obviously cost more. 

If you feel the need for traditional human advice, companies like Betterment, Vanguard, Personal Capital, etc., offer such services. 

With a higher minimum account balance, companies, such as Personal Capital, offer dedicated advisors. Betterment offers two different fee packs for such additional services to choose from. 

One important factor to remember here is that such advisors do not have the power to enable direct changes or advice on your investment. They can just field your general investment queries and keep your focus intact.

By choosing companies that offer both services, you can make use of the personalized component for a smoother transition to various other investment options that you want to try.

Key Takeaways

With more and more traditional firms adding on robo-advisor services, it helps to know what to look for on such beneficial digital platforms. A low-cost service that does not compromise on the services you prefer will be the apt choice. To enable this, find out about the services provided, the management costs, and the presence of dedicated human advisors, so you have all your bases covered. 

And in certain cases, you may find that choosing a diversified mutual fund investment will be cheaper than going for a robo-advisor. In the case of advanced investors, the services offered are very minimal, so such platforms are more ideal for beginner investors.