(Bloomberg) — For investors who want to put their money on autopilot, there’s no shortage of robo-advisors to choose from. But which one is the best? According to the new ranking, popular investment platforms can vary greatly in quality and value.
Morningstar Inc. An analysis of K16 robo-advisors states that the products offered by Vanguard Group and Betterment are the best overall options for helping investors achieve their financial goals. Both rose to the top of the list thanks to their “low cost, transparency, fair asset allocation approach and wide range of financial planning tools,” the report said.
So-called robo-advisors have grown in popularity over the past decade, starting with the simple premise that algorithms can take an investor’s age, time horizon, goals and risk tolerance and create a low-cost portfolio of exchange-traded funds for them. can make. Recently, companies have begun to offer more complex or personalized products, including access to crypto and ESG portfolios, as competition with brokers such as Robinhood Markets Inc. and Weebly increases.
Robo-advisors were estimated to have $785 billion in assets by the end of the year 2020, according to Backend Benchmarking, which also performs an annual ranking of firms.
“It’s hard to measure how much money these programs make for customers,” said Morningstar’s Amy Arnott. “That said, most robo-advisors take the general approach – focusing on a widely diversified portfolio of low-cost ETFs, matching the risk profile of the portfolio with the investor’s risk tolerance and time horizon, depending on the timing of the market. Instead of encouraging long-term investments, etc… – there’s a lot in its favour.”
He added that investors who use a robo-advisor that follows these practices should see better long-term results than buying and selling individual stocks.
While traditional advisors may charge closer to 1%, companies analyzed by Morningstar charged fees ranging from zero to 1%, with an average of 0.30%.
Vanguard’s Prasad beat Betterment by the nose in Morningstar’s opening report. Robos that didn’t come: Titan Invest, E*-Trade Core Portfolio, Merrill Edge Guided Investing, Morgan Stanley Access Investing, UBS Advice Advantage, and Wells Fargo Intuitive Investor. Morningstar analysts lambasted the group for “high fees, limited plan features, and in some cases a lack of transparency.”
The report evaluated the offerings on a five-point scale including fees (30% weight), investment selection process, portfolio creation and how investors matched the portfolio (30%), Robo’s parent company (20%) , and the spectrum of services (20%).
As robos have become more popular, regulators have scrutinized their operations and marketing claims more closely. An example of this came in June, when Charles Schwab Corp. said it would set aside $200 million related to an ongoing investigation by the Securities and Exchange Commission involving its Schwab Intelligent Portfolio robo-advisor. The investigation “relies largely on historical disclosures,” according to an 8-K filed by the company at the time.
The Schwab Intelligent Portfolio earned an above-average grade from Morningstar, though the report cited concerns about its practice of allocating “a significant portion of client assets to low-yield, in-house cash accounts.”
To contact the author of this story:
Susan Woolley in New York [email protected]