Condor Capital Management publishes The Robo Report, a free, comprehensive quarterly newsletter reporting on the digital advice industry. The report tracks 42 accounts across 27 digital advice providers. Our mission is to bring transparency to the digital advice industry.

With a few exceptions, the portfolios we track in our report represent moderate to moderately aggressive portfolios. We aim for portfolios that contain allocations of 60% equities and 40% fixed income.

Robo-Advice Industry Highlights

Each year, we look back at the industry and provide AAII members with an update on the robo-advice industry, products and portfolio performance. Robo-advice emerged onto the scene in 2008 with the launch of Betterment and Wealthfront. While robo-advice products are now a permanent part of the financial advice landscape, recent years have witnessed a consolidation across this industry, with most start-ups either being acquired or shut down.

Since the last update, there has been continued turmoil in the robo-advice industry. Notably, FutureAdvisor—which was acquired by BlackRock in 2015—announced that its direct-to-consumer business is being sold to Ritholtz Wealth Management. Under the control of BlackRock, the direct-to-consumer product had long languished; we witnessed very few product enhancements over the years. This followed the abrupt shutdown of Blooom, a 401(k)-focused robo-adviser, in late 2022.

Early in 2022, Wealthfront and UBS signed an agreement for UBS to acquire Wealthfront, and it appeared at the time that one of the few remaining independent robo-advisers would be folded into a larger firm. Despite already having a robo-advice product, it appeared that the Swiss bank would acquire Wealthfront until the deal fell apart last year. For now, Wealthfront will remain independent.

Betterment remains an established player in the market, and while we anticipate that Betterment will continue to be a stable business, it has had a rocky year. Last year, Betterment announced that accounts with less than $20,000 will be charged a $4 monthly fee unless they meet monthly deposit requirements. While $4 per month sounds reasonable, this is a significant jump in fees on smaller accounts. For an account with just $1,000 in it, this roughly equates to a 4.8% annual management fee. This speaks to the difficulty of profitably serving clients with account balances of just a few thousand dollars or less. Betterment also recently reached a settlement with the U.S. Securities and Exchange Commission (SEC), in part related to some issues with its tax-loss-harvesting software that affected a relatively small number of clients. While this is clearly not good news for Betterment, we also acknowledge that when start-ups push the envelope of innovation, coding errors can occur.

Meanwhile, Vanguard has rolled out automated tax-loss harvesting in its digital-only robo-advice product, Digital Advisor. Vanguard’s digital tools have been gradually increasing in quality over the years, but its product has often lagged others in terms of its online experience. It now offers a quality experience and a good digital retirement planner. The lack of a great digital experience in the past did not hold Vanguard Personal Advisor services back from quickly becoming a market leader in the space.

Our Top Robo-Advice Platform Pick

Wealthfront is our current selection for the best overall robo-adviser. The digital experience offered by Wealthfront is top tier and strikes an impressive balance between simplicity, functionality and customization. Wealthfront has a strong platform that has been a leader in innovation since its founding over a decade ago. Wealthfront is also one of the only platforms that stuck to its original, digital-only offering. While you can now call in and receive operational support from a small, in-person team, Wealthfront’s intention is to make its online experience strong enough to eliminate the need for live advisers. The online digital planning experience is rivaled by only a few other products on the market. Wealthfront also maintains its 0.25% management fee, making it a great option for the cost-conscious investor.

Please note that our Wealthfront portfolio was first invested in 2016 and has long held a dedicated allocation to an energy-focused exchange-traded fund (ETF). Since our first investment, models at Wealthfront no longer include this allocation to energy. The energy sector experienced significant outperformance in 2022. Not all investors will have experienced the fantastic outperformance by Wealthfront that our portfolio did.

For Those New to Investing

SoFi is a great option for first-time investors and a strong all-around platform. While we focus on automated investing at SoFi, it is worth noting the depth of the platform as a whole. On the SoFi platform, individuals can find bank accounts, credit cards, mortgages, insurance, self-directed investing, cryptocurrency and, of course, its original business line of student loan refinancing. The checking accounts are free, the savings accounts offer high interest rates, the credit cards offer 2% cash back, self-directed trading is commission-free and the Automated Investing robo-adviser has no management fee.

One reality for many young Americans is that the investing journey really starts on the path to paying down student loans or other debt. SoFi is a platform where student borrowers can explore options to consolidate debt as a first step and work their way toward saving for long-term goals. SoFi offers access not only to live financial planners but also to career coaches. SoFi Relay is also a quality budgeting tool: It allows tracking of outside accounts and helps investors with smart budgeting. Budgeting, career coaching, live planning, low fees and the ability to manage many areas of one’s financial life on a single platform combine to make SoFi a compelling platform for those starting their investing journey.

Best Digital Planners

Robo-advisers have democratized managed accounts and access to advice while bringing high-quality financial plans to anyone with an internet connection. We believe the best two digital planning tools come from Empower (previously named Personal Capital) and Wealthfront.

One way these tools stand out is by bringing in data from outside accounts to combine multiple goals into a holistic financial plan. The capability to incorporate future events—such as Social Security, pension or other retirement income, windfalls and other custom inputs—aids in their ability to plan effectively while presenting information in a digestible, user-friendly manner. Empower and Wealthfront include these robust planning tools in the standard, free-to-use versions of their services.

Complex Financial Planning Needs

While some of the digital planning tools on the market have enough features to model many complex situations, those with complex planning needs can still benefit from live planners.

Vanguard Personal Advisor championed the “hybrid” advice model and remains our top choice for those with complex planning needs. While Personal Advisor still leaves something to be desired on the digital interface, it provides tremendous value, costing just 0.30% in management fees. With a minimum investment of $50,000, users can work with a live adviser to model multiple financial goals. Additionally, for those with $500,000 or more, Vanguard Personal Advisor Select provides a dedicated adviser to clients at the same low management fee.

Considering that traditional financial advisers often charge a 1% management fee, Vanguard Personal Advisor has paved the way for a new kind of service.

Schwab Domestic Focus Shines in Three-Year Performance

Charles Schwab’s domestic focus portfolio benefited from a few different choices, namely its fundamental-weighted ETFs. Instead of being weighted by market capitalization, these funds are weighted by a set of fundamental attributes like sales, dividends and buybacks, as well as retained operating cash flow. They have performed well: The Schwab Fundamental U.S. Large Company Index ETF (FNDX) had an annual return of 23.2% for the past three years, outperforming the S&P 500 index by over 4.5 percentage points, while the small-cap and international versions have also performed well.

Finally, the Schwab domestic focus portfolio was particularly attractive as U.S. stocks outperformed international developed stocks by nearly 5 percentage points per annum for the three-year period. Schwab also carries a high allocation to cash, which in times of rising markets has created a cash drag on the portfolio. However, during the recent period of declining equity and fixed-income prices, the cash has acted as a ballast, dampening losses.

Wealthfront, Zacks and Fidelity Go Shine Over Longer Periods

Wealthfront, Zacks and Fidelity Go exhibited strong performance over the previous five years. As mentioned, our Wealthfront (2016 vintage) account has had its relative performance substantially boosted thanks to a dedicated energy allocation. Both Wealthfront and Zacks demonstrated a notable domestic bias. Zacks, for example, has over 85% of its equity portfolio in U.S. stocks, while Wealthfront holds 72% of stocks domestically. Highlighting the importance of this domestic bias, the S&P 500 returned 11.2% annualized over the past five years, compared to only 4.2% for the MSCI EAFE index. Fidelity Go’s exposure to domestic equities is in line with the average robo-adviser, but the portfolio benefited from having one of the largest allocations to large-cap stocks. Both small-cap and mid-cap stocks underperformed during the five-year period.

When looking at the fixed-income portfolios of these strong performers, each of the three portfolios were almost entirely allocated to municipal bonds. Our Zacks, Fidelity and Wealthfront robo-adviser accounts are allocated 97%, 93% and 80% to municipal bonds, respectively. Investors should note, however, that Zacks continues to be notably more active from a fixed-income perspective, as the robo-adviser has demonstrated an adept ability to shift its bond model across its sector allocation and duration.

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