What I learned trying 11 services over 10 months
“When there are multiple solutions to a problem, choose the simplest one.” - John Bogle
For the past ten years I’ve been investing primarily in Vanguard’s passively managed index ETFs. My individual choices were representative of the larger retail market, as Vanguard’s low fees and index message have captured market share.
Learning of the existence of software based investment advisors was a revelation for me. Keeping your portfolio correctly balanced, reinvested, and in the lowest fee funds can be a lot of work, especially if your holdings are split between multiple brokerages and accounts.
Having a computer manage this administrative work is not just easier, it can increase returns.
About a year ago I set out to try and research some of the different providers of automated investment managers.
If I was going to move some of my accounts away from Vanguard I wanted a solution that would:
- Keep advisory fees very low
- Be transparent about the approach and methodology
- Leverage technology for efficiencies, but not to employ active management
- Be a delight to use (unlike most bank/brokerage/personal finance services)
Evaluating the field
In all I tried or researched 11 different services over about 10 months.
There were a number of services that I ruled out pretty quickly.
Hedgeable - They don't tell you specifically what they are investing in and have significantly higher fees
MarketRiders - Passive approach and low fees, but they do not actually rebalance and reinvest for you (though they have recently launched an automated program, a fee for which is not advertised)
Asset Builder - Advisor fees are higher than competitors' fees unless you have more than 4 million dollars. The underlying ETFs they use also have higher expense ratios
Covestor - Very high fees, actively managed
PJMINT - Very high fees, little portfolio transparency
Personal Capital Corp - Beautiful customer interface, but very high fees, active management, and a design/interface focus on short term returns
Fantastic low fee index ETFs and mutual funds that trade commission free
Automated dividend reinvestment
Some limited online tools to analyze your total portfolio (including external accounts) against the broad market (for example - “your small cap holdings are weighted 14% more heavily than the entire market”)
Interface feels very clunky compared to competitors
Transferring funds and sweeps between accounts seems to take twice as long as other financial services
Rebalancing and adding or moving money is a relatively manual process; I’ve been managing nine Vanguard accounts for myself and family members, so these small details require a fair amount of time in each account
I receive tons of duplicative physical mail for holdings in the Vanguard accounts I manage. I am signed up for email delivery of all materials, and have made multiple efforts to ask Vanguard to send less mail, but the deluge persists
A promising service that has a beautiful interface and lots of great visualization
Two distinct options, free analysis and advice, and automated rebalancing at select brokerages for $10 a month
Despite the great design and graphics, SigFig feels like a traditional brokerage with the focus on short term returns; constant emails about daily or 7 day returns were annoying
Too much screen real estate devoted to short term returns/news
Fairly enjoyable interface
Ability to view all investments held elsewhere
Similar to SigFig: offers two distinct options, free analysis and advice, and automated rebalancing at select brokerages
Automated tax-loss harvesting
Can optimize your existing holdings (as opposed to liquidation and reinvestment in a set portfolio)
FutureAdvisor changed its model a few times in the past year and the fee for a managed account is now 0.5% (higher than its closest competitors)
I contacted support with questions on a few occasions and did not always receive a reply
Annoying emails about short term returns
Not as transparent regarding portfolio methodology
Great design and interface
Different portfolios for taxable vs IRA accounts
First $10K is managed free
Automated tax-loss harvesting (potentially useful for some investors)
Appears to have the most assets under management of my contenders
Low fee (0.25%)
Total transparency on portfolio
For accounts over $100K the fee is not the lowest possible
$5k account minimum
Have to create an account to see their internal interface
Great design and interface
Low fees (0.35 - 0.15% depending on account size)
Invests in fractional shares
Appears to have the second most assets under management and most customers of my contenders
Total transparency on portfolio methodology
No minimum initial deposit
Underlying philosophy of optimizing for automation, long term focus, and behavioral finance
No automated tax loss harvesting (UPDATE 7-20-2014 - Betterment now offers automated tax loss harvesting)
Little portfolio distinction between taxable and IRA accounts (UPDATE 7-20-2014 - Betterment now offers an optimized bond mix for IRA and taxable accounts)
No REITS (though most cheap REIT ETFs have recently been strongly correlated with domestic equities)
My verdict - Betterment wins
I like aspects of the analysis and advice service with FutureAdvisor and SigFig, but their automated offering doesn’t seem as carefully refined as Wealthfront and Betterment.
Vanguard is the cheapest option with regard to fees, but they don't offer the automated efficiencies, and their customer experience is relatively unpleasant.
I think Wealthfront and Betterment are both fantastic services for my investing needs. There are some differences between the two, and a lot has been written on Quora and elsewhere about these distinctions.
I chose Betterment primarily for its heavy focus on behavioral finance. Its very clear from the user interface and blog posts that Betterment spends a great deal of time thinking about not just optimizing portfolios but also investor behavior.
Though I think Betterment is the best fit for the majority of my investing goals, I’m excited by the continuing development of many services in the total online investment advisor market. Technology is enabling fantastic innovation for retail investors, and along with the many variations on crowd-funding and P2P lending, helping to transform and flatten finance.
In the interest of full disclosure, since I published this post, I've been engaged by Betterment as a consultant. All of the above content was originally written from the perspective of an independent consumer, and I did begin to move my savings to Betterment several months before any employment discussions with Betterment. So while my admiration for Betterment's product certainly played a role in my current engagement, the engagement played no role in the above assessment.
Other helpful reviews
- One of the best reviews I have seen of the automated investing space is Elisabeth Kashner's seven part series comparing six providers. The final piece is here. Its pretty technical, but for those interested in the differences in asset allocation strategy between these services, its extremely valuable.
- Mr. Money Mustache trys robo advising.
- The Mad Fientist chooses Betterment.