Human advice on automated wealth managers
Robots already vacuum homes and carry medical supplies in hospitals, so why shouldn’t consumers consider them to help manage their money? The financial comparison site MoneyRates.com breaks down the steps consumers can take to choose a robo-advisor before they make the leap to automation in What is a Robo-Advisor and How Do They Work?
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10 Things to Check When Choosing a Robo-advisor:
- The base fee – This is usually based on a percentage of the assets placed; .25% is common among industry leaders, but consumers should remember they’ll also pay the expense ratio of the funds used to build their portfolio.
- Trading fee – Investors should be sure to check if there any fees for trades and consider looking for a robo-advisor without fees since they can quickly add up.
- Fee reductions for higher balances – If a consumer has more than $100k to invest, ask about reduced fees because managing the account should become more cost-effective with a bigger account.
- Captive vs. outside products – Some robo-advisors are affiliated with fund families, meaning they use their own products; investors may get a broader range of choices from one with independent investment products.
- Tax treated – In layman’s terms, if a consumer plans to place a taxable portfolio under the robo-advisor’s management, ask what tax-efficiency strategies are used and if there is a capability to employ techniques such as tax-loss harvesting.
- Minimum account size. It’s important to have enough money to qualify for the firm’s services and are not so close to the minimum in case of a market downturn or withdrawal.
- User interface – Investors should be comfortable with the interface and test that it works on their devices.
- Socially responsible investing capabilities – For people opposed to certain investments due to specific ethical reasons, they may want to check that the system can accommodate or restrict investments in those sectors.
- Retirement-goal targeting – Some robo-advisors offer tools where consumers can see how much they need to save to meet their retirement goals.
- Rebalancing methodology – Look into how often the rebalancing is done; resets are necessary periodically, but frequent rebalancing can become inefficient and lead to a portfolio being out of alignment since asset changes vary.
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“Choosing a robo-advisor is only the first step,” notes Kristin Marino, finance expert and managing editor for the site. “Investors will want to keep an eye on their account to make sure the fees remain competitive and that the robo-advisor is delivering.”
