The Wall Street Journal - 09.03.2020

THE WALL STREET JOURNAL. Monday, March 9, 2020 |R3

JOURNAL REPORT |INVESTING IN FUNDS & ETFS

W

hen the first

robo advisers

were launched,

the idea was to

offer everyone

access to invest-

ing. The slick apps offered ready-made

portfolios with minimum investments

and account fees as low as $1 a month,

appealing initially to younger investors.

Now, more than a decade later,

robo-advising firms have expanded

into other low-cost, accessible finan-

cial services as they vie with each

other for clients and try to expand

their customer base.

Robo advising has grown to a $600

billion-plus market that includes cash

accounts, financial advice, lending and

retirement services—attracting a

wider variety of investors than ever.

Robo-advising companies including

Acorns , Betterment , Personal Capital

and Wealthfront offer cash accounts

ranging from basic checking to high-

interest-rate savings accounts, and

some offer debit cards. Investors can

set up rules that automatically route

cash into savings goals, investment

portfolios and retirement funds.

Acorns, Betterment and Personal

Capital also offer individuals the

ability to do basic financial planning.

All these services are low cost. An

Acorns cash account, for example, has

no overdraft fees or minimum bal-

ances, and it includes free ATM use.

‘Self-driving money’

Wealthfront has gone so far as to say

that the robo label is too limiting for

its services. Kate Wauck, a spokes-

woman for the company, says its goal

is to offer fully automated finances

to consumers. As a step toward that

goal, Wealthfront is launching what

it calls “self-driving money,” a suite

of services that will allocate every

dollar that comes into an account in

accordance with rules set by the ac-

count holder.

When money is deposited in a

Wealthfront cash account, the money

can be automatically distributed into

bill payments, investments, loan pay-

ments, retirement and savings goals.

In addition, Newday’s cash account

provides sustainability and impact in-

formation on everyday purchases.

On a more personal level, Ellevest ,

a robo-advising firm that targets

women, has expanded to include ca-

reer coaching alongside investment

help. Ellevest users can get tips on

how to improve their job prospects

and negotiate for higher salaries, as

well as financial planning.

Hybrids draw older investors

Investment minimums for robo-ad-

viser accounts at the more-established

financial firms, like Vanguard Group

and Charles Schwab Corp., can be

more than $10,000. For that, investors

get access to more financial advice

than the more-accessible services gen-

erally offer, in some cases directly

from a human. Investors in these robo

advisers often come over from other

business lines at these firms or from

self-directed accounts and include

older investors, in part because of the

higher initial minimum investments.

Vanguard, which has the largest share

of the robo-adviser market at $148 bil-

lion, offers a hybrid: automated port-

folios with human advice on issues

like investment choices and tax con-

siderations. It recently started offering

an all-digital option, with no human

advice,foralowerfee.

Schwab, which recently acquired

TD Ameritrade and its robo business,

is the second-largest robo adviser,

overseeing $43 billion. Hybrid services

are available, as well as a new feature

that helps investors spend down their

retirement accounts smartly.

Looking ahead, both the newer

firms and the more traditional finan-

cial giants are likely to keep expanding

what is offered under the umbrella of

robo advisory. Technology provides a

low-cost way to offer an array of ser-

vices to clients that can help boost

customer loyalty. New entry points

like cash accounts can also serve as a

path into investing or other services

like lending or retirement accounts.

Ken Schapiro, president and chief

executive of Backend Research, a ser-

vice that monitors developments in

the robo market, says he expects cash

accounts to be the next frontier for

the more-traditional firms.

Industry estimates suggest that the

robo market could top $2 trillion in

assets by 2022. Mr. Schapiro says

firms are “all in” on continuing to im-

prove the robo-adviser apps and add-

ing services as users have come to ex-

pect an Amazon.com-like experience.

“They’re going to keep pushing the

envelope,” he says.

Ms. McCannis a writer in

NewYork.Shecanbereached

[email protected].

Vanguard

has the

largest share

of the robo

market, at

$148 billion.

It now offers

an all-digital

option, with

no human

advice.

Ms. Wauck says a majority of

Wealthfront’s new customers are

coming in through the cash-account

option—the company doubled the as-

sets it oversees to $24 billion with

the launch of cash accounts. Custom-

ers tend to move into investing later.

Wealthfront’s minimum for an in-

vestment account is higher than

those of many of its rivals, at $500.

Widening impact

More robo-advising firms are also

marketing to investors who say they

want to better align their investing

with their values.

Newday Investing offers cash

accounts and robo investing, tar-

geting investors who want to align

their portfolios to sustainability or

social-impact goals. Individuals can

choose the impact they want to fo-

cus on, and the site will generate a

portfolio that fits. The investment

minimum is $100.

Options for investors include a

gender-lens strategy, a sustainable

real-estate investment trust and a

strategy that focuses on ocean

health. In the future Newday plans to

offer faith-based portfolios.

Robo Advisers

Keep Adding

On Services

BYBAILEYMCCANN

Investors now get a broader range of

products from robo advisers,

including cash accounts

WhattoDoifYou’reBehindonStudent-LoanPayments

BYCHERYLWINOKURMUNK The office’s Loan Simulator, at

studentaid.gov, can help borrowers

find the best repayment strategy

based on their individual circum-

stances, including a plan that offers

the lowest monthly payment, fast-

est payoff term or lowest amount

paid overall. (This tool replaces the

Repayment Estimator, which bor-

rowers previously could use to get a

sense of what plans they might

have been eligible for and to esti-

mate payments.)

Some repayment options:

• Graduated repayment plan. All
  borrowers are eligible, though the
  overall cost of the loan is more than
  it would be under the standard re-
  payment plan. Payments are lower
  at first and then increase, usually
  every two years. Payments are cal-
  culated so that loans are paid off
  within 10 years or within 10 to 30
  years for Consolidation Loans, when
  a borrower has combined multiple
  federal student loans into one.


• Extended repayment plan.
  Only certain borrowers are eligible;
  who qualifies is based on factors
  such as the type of federal loan and
  the loan balance. Loan payments
  may be fixed or graduated, and the
  plan is designed so that loans are
  paid off within 25 years.


• Income-driven repayment.
  There are four income-driven plans
  for which borrowers may qualify.
  Each of these plans limits borrow-
  ers’ payments to a percentage of
  their income. Some can have pay-
  ments as low as $0 a month.
  PHOTO ILLUSTRATION BY JOHNNY SIMON/WSJ; PHOTOS: ISTOCKWhere these plans differ is with re-

Borrowers who are having trouble

making federal student-loan pay-

ments shouldn’t panic. There may

be options for relief.

Getting behind on student loan

payments—or worse, defaulting—

can lead to serious financial conse-

quences, so it is important not to

ignore the problem and hope it

goes away.Most likely, it won’t.

Instead, borrowers should call

their loan servicer to understand

what options might exist to lower

their payments or suspend them.

(Borrowers who don’t know the

name of their servicer can call the

Federal Student Aid Information

Center at 800-433-3243 to obtain

this information.)

Before making this call, however,

it is a good idea for borrowers to

have a basic understanding of what

options might apply. These options

are applicable only for federal stu-

dent loans. People who are having

trouble repaying private loans

should call their servicer to see

what options might be available.

Option 1

Change repayment plans

The standard repayment plan—the

default option for those who don’t

select a plan—usually costs less

over time than other repayment

plans. But the fixed payments may

still be too steep for some borrow-

ers. Borrowers, though, can change

repayment plans at any time, with

no fees, according to the Federal

Student Aid office—with the caveat

that it might increase the amount

paid over the life of the loan.

spect to who qualifies, how much

borrowers have to pay each month

as a percentage of discretionary in-

come, the length of the repayment

period, and the types of loans that

are eligible. Borrowers should be

sure to understand each plan’s limi-

tations before applying. They will

also need to recertify their income

and family size annually.

• Income-sensitive repayment.
  This is only for borrowers who have

Federal Family Education Loans, a

loan offering that was discontinued

in 2010. Under this plan, monthly

payments increase or decrease

based on a borrower’s annual in-

come. It’s generally a 10-year repay-

ment plan, though borrowers could

potentially be granted five years’

additional deferment.

For more specifics, visit the fed-

eral government’s studentaid.gov.

Option 2

Deferment

Some borrowers can qualify to de-

fer payments on the principal (and

on the interest, if the loan is subsi-

dized). A drawback is that borrow-

ers probably won’t be making prog-

ress toward loan forgiveness during

the deferment period.

Reasons for granting a defer-

ment include economic hardship;

enrollment in a graduate fellowship

program; active-duty military ser-

vice; enrollment in a drug, mental-

health or alcohol-abuse-rehabilita-

tion treatment program; or

unemployment. A new law also al-

lows people diagnosed with cancer

to defer their federal student loans

during their treatment.

Before considering a deferment,

ask the loan servicer what your

new principal balance would be

when you restart the payments,

says Elaine Griffin Rubin, senior

contributor and communications

specialist at Edvisors, a provider of

free information on paying for col-

lege and financial aid. This is impor-

tant because any interest outstand-

ing could be capitalized—added to

the principal balance—after the bor-

rower starts making payments

RECESSION

Percentofoutstandingbalanceat

least90dayslate,byloantype

Source: New York Fed Consumer Credit Panel/Equifax

Note: Delinquency rates for student loans are likely

underestimated, per New York Fed analysis.

14

0

2

4

6

8

10

12

%

2005 ’10 ’15 ’20

Student loan Credit card

Auto Mortgage

SAVING FOR COLLEGE

again, meaning the monthly pay-

ments could increase.

Applicants for deferment must

continue making payments on their

loans until they are notified that

their request has been approved.

Option 3

Forbearance

Borrowers who don’t qualify for a

deferment can apply for a forbear-

ance, in which they temporarily halt

payments or make smaller pay-

ments. Most times, borrowers need

to submit a request to their servicer

for forbearance.

During forbearance, borrowers

are still responsible for paying inter-

est that accrues. Borrowers should

continue to pay their loans until

they are notified their request for

forbearance has been approved to

avoid delinquency or default.

Other considerations

In general, if you are facing a hard-

ship that is likely to be short-term,

you could be better off with a de-

ferment or forbearance, say for a

month or two.

But in most cases, struggling

borrowers will be better off chang-

ing their repayment plan than seek-

ing deferment or forbearance, says

Michael Lux, founder of the Student

Loan Sherpa, a website for student-

loan education, strategy and bor-

rower advocacy. Income-driven re-

payment generally provides a more

appropriate, longer-term solution.

Ms. Winokur Munkis a writer in

West Orange, N.J. She can be

reached [email protected].