Invest
MARCH 2019 MONEY.COM 21
What to Ask Your Robo-Advisor
Online investing services are gaining fans—but some are better than others.BY PAUL SCHRODT
PICKING FUNDSMONEY MANAGEMENT HAS LONG
been a luxury available only
to the wealthy. The digital age, as it
tends to do, has upended that.
Robo-advisors provide financial
advice and investment strategies
using algorithms that have gotten
rapidly more advanced, providing
you with virtually all the know-how
of a traditional human advisor and
a lot of mathematical power—plus
they won’t scoff if you have less
than a couple hundred thousand in
the bank. They’re now common
offerings among major financial
institutions. And, best of all,
they’re much cheaper than
traditional human advisors. But
that doesn’t mean they’re flawless,
and they’re certainly not all
created equal. We talked to experts
about what to ask when consider-
ing a robo-advisor.1
WHAT ARE THE FEES?
“Most people were shut out”
of the old world of financial
advisors because they didn’t meet
investment minimums required to
get started, says Greg McBride,chief financial analyst for Bankrate
.com. Robo-advisors have radically
shifted the landscape, but it’s still
important to keep in mind how
much you’re giving up for their
services. Wealthfront and Better-
ment, two popular robo-centric
advisory companies, charge an
annual 0.25% fee on account
balances with no opening fee,
whereas “under the traditional
model, you generally pay 1%,”
according to McBride.2
HOW RICH DO YOU NEED TO BE?
Many traditional money
managers will turn you away
if you don’t have six-figure amounts
to invest, according to McBride.
That has made robo-advisors a
no-brainer for many, but some do
require minimums. Services like
Ellevest require no money to open
an account. Betterment doesn’t
have a minimum balance require-
ment, but Wealthfront asks for a
minimum of $500 in the account
balance. Know what will work for
your financial state, but also keep
in mind, McBride adds, that “if youdon’t already have $500 in a
savings account for emergencies,
then hold off on robo-advisors.”3
WHAT DO THE FUNDS COST?
That algorithm-enhanced
advice isn’t the only thing
that will take some of your money
when you invest. There are
typically management fees
associated with the funds and
ETFs robo-advisors select for
you. While robo-advisors aim to
keep these as low as possible—
almost always focusing on index
funds, which merely try to match
market returns—they still push
up your overall costs, which lowers
your investment returns. Check
your robo-advisor’s website for
an estimate of these additional
fees, and if you can’t find it there,
the robo’s customer service
department should be able to
provide one.4
HOW TAILORED WILL YOUR
INVESTMENT PLAN TRULY BE?
A robo-advisor presents you
with a questionnaire that’s used toFOR BEGINNERS
BETTERMENT DIGITAL
Minimum to open account:$0
Average all-in cost:0.36%
Special features and services:
Includes a wide range of investment
and retirement tracking tools.MONEY’s Top
Three Robo Picks
We studied more than 50 robo-
advisors to find the best for you
(see “The Robos Are Coming,”
August). Here are our favorites.
BY MEGAN LEONHARDT