Rise of the Money Machine
Betterment pitches itself as the best choice of all the Robo advisors for high net worth individuals, and claims to have the most sophisticated algorithms for optimizing earnings by minimizing fees and tax liabilities. Betterment’s tax management algorithms can improve returns by 2 percent, claims CEO Jon Stein, which means big savings over the long-term. “We think very scientifically about how to come up with our advice,” says Stein. As part of this approach, Betterment eschews using self-evaluation to calculate customers’ risk tolerance, and instead relies on concrete, projectable data points (like fees). Betterment cultivates positive customer behaviors, such as sticking with investments through bear markets, by deemphasizing daily performance in its reports. The company also offers investors the ability to create multiple sub-accounts with different mixes of ETFs and provides the option of automated withdrawals. For investors who may still want human advice, Betterment customer service representatives are available 365 days a year, and the entire team does shifts answering customer questions, including Stein.
At its core, covestor offers three, no-fee passive-investment options. Then it supplements these classic robo advisor products with the opportunity to invest in actively managed funds constructed around specific themes. Investors effectively gain the advantages of passively managed robo advisor funds while simultaneously being able to diversify their investments between manages. All of the portfolio managers are thoroughly vetted by Covestor. CEO Asheesh Advani says dozens of money managers apply to manage funds on Covestor every month and those who are chosen are “a curated group which has gone through our due diligence.”
Savant advisor is a robo advising product offered by rockford, Illinois-based savant capital management and came into being following the company’s 2012 purchase of the startup Invest Simply. While eSavant Advisor uses standard robo advising software to optimize portfolios, the company also pairs every customer with a human Online Financial Planning team, providing many of the benefits and psychological comfort of a more traditional financial advisor. eSavant Advisor competes most directly with Rebalance IRA as both target retirees or other individuals who might want the benefits of robo advising but still need regular human contact.
Contact: Savant Capital, 866.489.0500 | savantcapital.com
Futureadvisor’s modus operandi is to personalize your investments and manage them so you don’t have to,” and this is an indication of its status as a pure robo advisor (alongside Wealthfront and Betterment), meaning that their core product is asset allocation using algorithms. Anyone who wants passive investment portfolio management doesn’t need humans anymore, says Chris Nicholson, head of communications. Pure robo advising services like these can offer high net worth investors a boon in the form of extremely low beta. “We focus on, how can we make what we’re certain about,” like fees and taxes, “cost the least,” Nicholson says. Any investor can link brokerage or IRA accounts to FutureAdvisor for free and receive rebalancing and allocation recommendations for passive investment. For a fee, FutureAdvisor will do all of the rebalancing and optimizing for you.
Motif investing is a platform that includes several passively managed, robo advisor-style options alongside themed portfolios with names like “Frack Attack,” “Modern Warfare” and “Natural Gas Glut.” The robo advisor-style “horizon” motifs are like other passively managed funds, except that the Motif model allows users to customize not only the amount of risk in the portfolio, but also the specific ETFs included within it. While the Motif model may not be the best option for established investors looking for a pure robo advisor model, it can be especially good for introducing children to investing. “Our early adopters were all high worth [and] they were using this as a way to give the gift of investment to their children,” says CEO Hardeep Walia. Traditional firms are taking notice: Goldman Sachs Group led a $25 million financing round earlier this year.
Personal capital aims to aid investors in managing all of their assets, rather than simply providing a basic robo investing platform. The service begins with a free suite of personal finance software specially designed to incorporate any asset type a person might have. “When we manage a household, it’s not on an account basis, it’s on a household basis,” taking into consideration a family’s entire financial life, says CEO Bill Harris, who is former CEO of Intuit and PayPal. New clients start with a half-hour interview and are ultimately paired with human advisors. “We are a service that has increasing value for people with increasingly complex financial lives,” Harris says. “Our role is to protect investors from their own worst instincts.” The addition of human financial advisors makes Personal Capital somewhat more expensive than pure robo advisors, but their service is designed to handle financial complexity outside of the reach of many robo services.
Rebalance Ira is robo advising for those who still yearn for personal connection in a digital world. While some services, like Motif, promote their ability to work like a social network, and others, like FutureAdvisor, argue that humans are obsolete when it comes to passive investing, Rebalance IRA finds its customers somewhere in the middle among those who still need some hand-holding from time to time. “The main market that loved what we were doing were baby boomers,” cofounder Mitch Tuchman says. Boomers, who have by now weathered many a financial storm, go to Rebalance IRA because it offers robo advising technology, but still pairs investors with a financial advisor (the consequence is that fees are a bit higher). “Frankly, all the robo services are is Vanguard LifeStrategy funds … We just found that people wanted to talk to an advisor,” Tuchman says.
People are paying way too much in fees and are not properly diversified, says sigfig CEO Mike Sha. Even individuals using robo advisors often lack proper diversification because the money they have outside of their robo advising accounts is too homogenized. “Everyone else forces you to open a new account with cash,” Sha says, “What the SigFig experience does is allow you to link all of your different accounts,” so you can optimize them without converting assets to cash. On average, SigFig customers link four different accounts, which SigFig then optimizes using robo advising technology. Investors don’t pay any trading commissions, and SigFig charges a flat rate of only $10 a month
Wealthfront has seen some of the most impressive progress in the world of robo advisors. In 2013, its assets under management shot up 450 percent from $100 million to more than $538 million, and the three-year-old company now manages more than $1 billion. Word of mouth and a steady stream of investment from employees at tech giants like Google, Twitter and Facebook have driven this massive growth. While Wealthfront’s passive investing approach is similar to that touted by the other major robo investors, the company has benefited from the reputation of CIO Burton Malkiel. But Wealthfront’s biggest strength is a simplicity that’s particularly appealing to the millennial generation—features like tax-loss harvesting have been automated. Another appeal of Wealthfront? Accounts under $10,000 are managed for free.
Contact: Wealthfront, 650.249.4258 | wealthfront.com