Nearly a decade ago, the first robo-advisors emerged to help investors manage their personal assets through digital platforms that provide automated, algorithm-driven financial planning services with little-to-no human supervision. The two fintech innovators behind this, Betterment and Wealthfront, shepherded a whole new way for investors to easily access professional financial management services with low fees and no minimum account balances.
For most of those 10 years, stocks surged and other financial services firms followed with their own digital advisory services for investors, according to Barron’s fourth annual ranking of robo-advisors.
However, the COVID-19 pandemic changed the trajectory of the market. As noted in Barron’s, the S&P 500 Index plummeted 34 percent in just over a month, and while chaotic periods are when human advisors justify their fees, it was the first time robo-advisors faced a real stress test.
Key Findings in Barron’s Fourth Ranking
So how did digital advisors do? According to Barron’s latest ranking, which is based on its exclusive partnership with Backend Benchmarking who spent five years funding and maintaining accounts with 40 robo services, they are thriving.
Robo-advisors with stock allocations leaning more towards international, small-cap or value-oriented equities did not perform as well as others. However, Barron’s notes that performance is not the only factor and that keeping clients invested and moving toward their goals is also important. Data provided by many firms revealed just this—robo clients stayed invested during the height of volatility this year and even increased their contributions.
Top 10 Robo-Advisors
Backend Benchmarking ranked 40 robo services based on a wide range of criteria including performance, financial planning and customer experience. Its top 10 list includes:
- TD Ameritrade
- Fidelity Go
- E*Trade Core
- Wells Fargo
According to Barron’s, the lines between human and digital advice are continuing to blur. Firms that were founded on digital-only models, including Betterment, now offer human advice, while traditional financial advisors understand that clients, especially younger ones, want digital for the convenience and transparency.
Selecting a Robo-Advisor
When it comes to selecting a robo-advisor, Barron’s reported that no perfect one exists, and each has different strengths. However, Backend Benchmarking identified the top robos for different kinds of investors:
The best overall robo-advisor was SigFig, which ranked the highest on performance, key features and functionality.
Wealthfront came in as the top pick if you want mostly digital advice to simplify planning for multiple goals like retirement and buying a home. Barron’s also noted that Wealthfront is working on a tool that will help with planning questions or splitting paychecks among bills, saving and investing.
For complicated situations, Vanguard was the best choice for its Personal Advisor Services, which offers comprehensive planning with a human advisor for a low management fee.
For first-time investors, Betterment was the number one pick.