How to pick the best robo advisor for you

Robo firms have developed sophisticated computer programs to assemble and manage portfolios tailored to individual investor’s risk tolerance and investing horizons. Many are also now racing to offer extras, such as even more portfolio personalization, stepped-up tax strategies, access to alternative assets and more of a human touch. 

As a result, individual investors of all stripes “can get great service and a soundly constructed portfolio that fits your risk tolerance at low costs,” says Amy Arnott, portfolio strategist at Morningstar, the investment research firm. Robos might even outshine their human counterparts in some areas. “They can eliminate biases,” says Sophia Duffy, associate professor of business planning at the American College of Financial Services. Such biases might lead to suboptimal portfolios for women or other groups, she says. However, although robo advisors are supposed to follow the Securities and Exchange Commission (SEC)’s fiduciary rule and act in clients’ best interest, in reality, computer programs are only as trustworthy and capable as the humans who program them, Duffy observes. 

“Platforms can be built to recommend what’s in the best interest of the firm, not necessarily the client,” she says.

Before you commit your money, make sure you cover the basics with any prospective advisor: 

Costs

Barbara Friedberg, the founder of Robo-AdvisorsPro, warns that many investors don’t realize they are typically charged at least two kinds of fees. On top of an overall management fee, you’ll also pay annual expenses, as a percentage of assets, for each mutual fund or exchange-traded fund (ETF) in your portfolio. 

The management fees for most of the firms we analyzed range from 0% to 0.85% of assets. A few firms instead charge monthly subscription fees ranging from $3 to $9, which for small investors can amount to a higher percentage of their portfolio but, for large portfolios, can offer a real bargain. 

Sophia Duffy urges the robocurious to ask about the costs of closing an account, too. Some firms charge exit fees, she notes. 

Potential conflicts

If the fee seems unusually low, “there’s got to be a catch somewhere,” warns Arnott. Some firms are willing to lose money on free or nearly free management services, using them as loss leaders to attract new clients. Others collect their money in less-obvious ways — for example, by putting your money in their own higher-fee funds, pressuring you to use other services — such as checking accounts or loans — or allocating some of your investment to low-paying cash accounts so they can invest the money at higher rates and keep the difference.

Portfolio particulars

All robo firms require you to fill out a questionnaire about your goals and risk tolerance to generate a portfolio. If a firm won’t provide much information on the specific funds you’ll invest in until you commit your money, “it’s a big red flag,” says Arnott.

Find the best robo advisor for you

Methodology

Kiplinger has summarized some strengths and weaknesses of 10 major companies and identified some of the specific needs they serve so you can more easily find one that suits you. 

Where quoted, portfolio performance numbers come from Condor Capital Wealth Management’s third-quarter 2022 Robo Report. Condor Capital has invested roughly half a million dollars in test portfolios at 33 robo-advice firms and publishes returns quarterly. Although Condor tries to choose a standard portfolio of (60% stocks, 40% bonds) for a fair comparison, it isn’t always possible, says David Goldstone, manager of Condor’s investment research. So portfolio returns are not directly comparable but are provided for context. (Portfolios cited here have stock allocations ranging from 52% to 67% of assets, bond allocations from 32% to 43%, and cash positions of 0 to 11%.) Expense ratios refer to what each firm considers its basic or “core” portfolio and in most cases are roughly equivalent to the expenses of the Robo Report portfolios.

Take our quiz to find the right robo advisor for you

Q: How much human involvement do you want in your investment?

• A: Almost none. I don’t want to talk to people.
  Consider: Wealthfront, which prioritizes online usability rather than phone services. 
• B: I’d like unlimited access to a human.
  Consider: SoFi Automated Investing or premium tiers at Betterment Digital, Fidelity Go, Schwab Intelligent Portfolios and Vanguard Personal Advisor Services.

Q. How complicated are your finances?

• A: Very simple.
  Consider: the basic tiers at Betterment, Fidelity, Vanguard or Wealthfront. 
• B: I’d like help saving for several different goals.
  Consider: Betterment or Wealthfront, which offer multiple savings “buckets” in their basic offerings.
• C: Pretty complex.
  Consider: Betterment Premium, Schwab Intelligent Portfolios Premium or Vanguard, which offer access to certified financial planners.

Q. Where are you in your investing journey?

A: Just starting out with very little money.

Consider: SoFi or Fidelity for their low minimum investments and feefree management. 

B: Midway. I have a good amount of money to invest.

Consider: The basic tiers of most major providers on our list offer reasonable costs and services. 

C: I’m approaching retirement and would like help figuring out how best to start spending my savings.

Consider: Betterment or Schwab for their services that turn retirement savings into income.

Q. How important is values-based investing to you?

A: Not at all. I focus on returns, period.

Consider: Fidelity, SoFi, Merrill Guided Investing, or Wealthfront, which have logged above-average long-term returns.

B: I want my investments to address environmental, social, or corporate governance concerns.

Consider: Betterment, Ellevest Digital Investing, Vanguard, or Wealthfront, which offer ESG choices.

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