Money continues to flow to digital advisors.
Betterment, one of the largest independent digital advisors, crossed $10 billion in assets under management in August, and Vanguard reported that its Personal Advisor Services robo now manages $83 billion. Despite the popularity, it has been difficult to judge how these automated advisors actually perform.
To answer the question, BackenDBenchmarking opened portfolios at several of the leading robo advisors, seeking a moderate allocation of 60 percent stocks and 40 percent bonds for an investor in a high tax bracket.
Acorns, a micro-investing service that automatically rounds up each client purchases to the next dollar and invests the change, had the poorest returns at 7.3 percent for the trailing year ending June 30, 2017. Charles Schwab’s Intelligent Portfolios had the highest returns, with 11.94 percent for the year, followed closely by E*TRADE’s hybrid robo advisor at 11.92 percent.
On average, the robos posted a return of 10.6 percent for the year, more or less tracking the performance of traditional 60/40 index funds. The purely digital advisors' fees range from nothing to 75 basis points, while the hybrid services, like Vanguard Personal Advisor Services and Personal Capital, range from 30 bps to 89 bps. This is cheaper than a traditional advisor, but traditional ETFs cost half as much or less.
