This article highlights the largest robo-advisors based on their estimate assets under management for 2021 and beyond.
A robo-advisor, also known as a digital wealth advisor, uses computer algorithms to help you asset allocate and manage your money. The algorithms are there to tailor an asset allocation model to your risk profile and adjust automatically over time.
A robo-advisor does not incorporate a human advisor, which means you need to be comfortable trusting the algorithms in order to pay lower fees.
I personally use Personal Capital's free tools to management my wealth myself. It's good to stay on top of your finances and seeing how things are before hiring a robo-advisor. I've been using Personal Capital since 2013 and they are great.
Largest Robo-Advisors By Assets Under Management
Here are the largest robo-advisors as of 2021. The top 5 leaders will likely always have this order of ranking over the long-term.
It's unfair to include Vanguard and Charles Schwab (#2) in the largst robo-advisor list because they are gorillas in the space who started off and still are traditional money managers.
I would exclude Vanguard and Charles Schwab, and focus on Betterment as the #1 robo advisor with the largest assets under management.
Two Largest Pure Play Robo-Advisors
If you're going to go with a robo-advisor, you might as well stick with the best. I've analyzed the robo-advisors since they began and the top two are Betterment and Personal Capital.
Assets managed as of June 12, 2020: $22 billion AUM
Like most of the leading robo-advisors, Betterment offers investors automated tax-loss harvesting, rebalancing, and tax-efficient techniques. A unique Betterment feature is the opportunity for all clients to text questions to and receive answers from a human financial advisor.
In addition to Betterment’s growing AUM are its innovations. This digital advisor is at the forefront of robo-investing by offering not only access to financial advisors but socially responsible, smart beta and income portfolio investment options. Not one to relax, Betterment consistently releases new financial products to better serve their clients, including a low-cost a la carte financial planning packages, a high yield savings account, and the Goldman Sachs Smart Beta portfolio.
There is no minimum account balance required for Betterment investors who use the company’s digital plan. Betterment charges only 0.25% AUM for accounts valued up to $2 million for its Digital Plan, dropping to 0.15% AUM for accounts valued over this amount.
Betterment also offers a Premium Plan, which requires a $100,000 minimum investment and charges a 0.40% AUM. This fee drops to 0.30% AUM for accounts valued over $2 million. Betterment Premium offers access to Certified Financial Planners.
2) Personal Capital
Assets managed as of June 12, 2020: $12.6 billion AUM
Personal Capital is an automated investment manager with a free investment management platform. The free money management software offers a complete view of your financial picture all in one place.
The site provides a way to view bills, income, debt, investments, and more from a single location. Personal Capital allows its customers to link their existing banking accounts to the site, which gives clients the ability to track their spending, retirement savings and their portfolio’s performance. The site also offers digital advice based on your investments and financial accounts. Their free retirement planner allows users to test various scenarios to find out how their assets and income holds up.
Although the basic level of the service is free, the company offers Personal Capital Advisors, a paid comprehensive automated investment advisory service with dedicated financial advisors. The paid service requires a $100,000 minimum account balance. The investment management approach is unique, with a sector-based asset allocation and access to individual stocks. Personal Capital also provides typical rebalancing and tax-loss harvesting along with dedicated Certified Financial Planners for all clients with managed accounts.
According to Personal Capital’s performance data, the robo-advisor has been performing as well as, if not better than, comparative benchmarks in 3 out of 5 portfolios since their inception.
Personal Capital also offers a high yield cash account, and additional services for the wealthiest investors.
Personal Capital’s fees start at .89% for accounts up to $1 million and decline as portfolio values grow.
Largest Robo-Advisors Will Continue To Grow
As investors get more savvy and more knowledgable, robo-advisors will continue to garner more assets at the expense of the traditional wealth management industry.
Given their fees are so low, there will likely only be at most 10 robo-advisors at the end of the day. This is why you should stick with the largest pure robo-advisors like Betterment.
Here are some differentiating factors to consider when looking for which robo-advisor to manage some or all of your money.
- Minimum Deposit — With some firms you can start out with nothing, while others require sizable amounts to start.
- Annual Fees — Be aware of hidden costs and fees for the ETF a robo-advisor purchases on your behalf.
- Asset Allocation — Asset allocation can vary quite a bit based upon your age and the way you answer their risk assessment questions.
- Account Type Support — Do they offer individual, joint, IRA, etc.? Can the robo-advisor assist with your 401(k) plan?
- Automation — Some services are 100% automated vs. human-assisted advice.
- Tax Optimization — Services like Tax Loss Harvesting.
- Custody of Funds — Managed either by you, in which case they give trading advice, or directly by the firm.
- Management of Assets — Manage all your assets or just a portion.
- End Goal — Retirement-only or other goals (e.g., college education).
Out of all the services, Personal Capital is the most expensive at 0.89% (gets lower with more assets) but also has the most human interaction with its clients. Personal Capital is a hybrid robo-advisor that uses both technology and human advisors to personally help you navigate your financial journey.
When the world was falling apart in March 2020, it was nice to talk to someone at Personal Capital to calm the nerves and come up with a game plan.
The one downside with robo-advisors is that they only manage one portion of your wealth. And if you decide to let them only manage a smaller percentage of your net worth, that's all they can really see.
With Personal Capital, they see your entire net worth picture. Therefore, they can provide even better financial advice at a cost.
At the very least, I recommend everybody sign up for Personal Capital's free financial tools. I've used them since 2013 to track my net worth, manage my cash flow, analyze my investments, and plan for my retirement future. Since 2012, I've seen my net worth skyrocket because I've been able to stay on top of my money.
Everybody should at least sign up to run their numbers through Personal Capital's free Retirement Planner to see if your finances are on track.
Is A Robo-Advisor Right For You?
A robo-advisor is a great way to get started investing. The sooner you start investing, the sooner you can let investment returns compound over time. Saving and investing are the keys to financial freedom. In the past, so many people didn't know where to start. They couldn't go with a traditional financial advisor because their account minimums and fees were too high.
But with a robo-advisor like Betterment, you can get started with just $500, answer a number of questions, and they can start investing for you right away. Once you set up an automatic debit from your checking account, everything goes on autopilot.
If you are young, have a simple overall net worth, and lack investment experience and time, using a robo-advisor to manage your money is a great way to go.
About the Author: Sam began investing his own money ever since he opened an online brokerage account in 1995. Sam loved investing so much that he decided to make a career out of investing by spending the next 13 years after college working at two of the leading financial service firms in the world. During this time, Sam received his MBA from UC Berkeley with a focus on finance and real estate.
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