Since the first robo-advisors launched in the aftermath of the global financial crisis, automated financial advice has grown to a $440 billion industry. These automated online platforms use computer algorithms instead of human advisors to build and manage investment portfolios for individual investors. While there are dozens of robo-advisor platforms on the market, they aren’t all created equal. According to a recent Morningstar study that evaluated and rated 16 leading robo-advisors across a variety of metrics, Vanguard’s platform is the cream of the crop.
Need more hands-on investment management? A financial advisor can help you with retirement planning, tax strategy, estate planning and other financial goals.
How Robo-Advisors Stack Up
Morningstar compiled its ratings by evaluating the price of each platform (30%), the process used to select investments, construct portfolios and match investors with portfolios (30%), the parent organization behind the platform (20%) and the breadth of the platform’s services (20%). The robo-advisors received a rating of “high,” “above average,” “average,” “below average” or “low” in each category and then an overall numerical score ranging from zero to five.
The Vanguard Digital Advisor/Personal Advisor Services received the highest mark of all 16 platforms, scoring a 4.5 overall rating. Betterment was the second-highest-rated platform, according to Morningstar, receiving a 4.0 overall rating. Meanwhile, Titan was the lowest-rated service, garnering an overall score of just 1.0, followed by UBS Advice Advantage (1.6).
Here’s how Morningstar rated each robo-advisor:
- Vanguard Digital Advisor/Vanguard Personal Advisor Services: 4.5 out of 5
- Betterment/Betterment Premium: 4.0 out of 5
- Schwab Intelligent Portfolios/Schwab Intelligent Portfolios Premium: 3.6 out of 5
- SigFig: 3.6 out of 5
- Fidelity Go/Fidelity Personalized Planning and Advice: 3.5 out of 5
- Wealthfront: 3.5 out of 5
- Acorns: 3.1 out of 5
- Ally Invest: 3.0 out of 5
- Marcus Invest: 2.8 out of 5
- SoFi Wealth: 2.5 out of 5
- Wells Fargo Intuitive Investor: 2.4 out of 5
- Merrill Edge Guided Investing: 2.3 out of 5
- E-Trade Core Portfolios: 2.0 out of 5
- Morgan Stanley Access Investing: 1.7 out of 5
- UBS Advice Advantage: 1.6 out of 5
- Titan: 1.0 out of 5
What Sets Vanguard Apart
Vanguard offers two platforms that, together, received the highest score of any service that Morningstar considered for its study. Vanguard Digital Advisor (VDA) is the financial firm’s traditional robo-advisor offering, a 100% online money management platform that makes recommendations based on an investor’s profile and financial goals. Vanguard’s Personal Advisor Services (PAS), on other hand, is a hybrid model that combines the automation of a conventional robo-advisor with the personal touch of a human advisor. Investors enrolled on this platform pay slightly more in fees and are subject to higher minimum account balances, but have access to human advisors.
Morningstar found that Vanguard set itself apart from other services within the all-important category of price. Vanguard was the only platform that received a “high” rating for price, as VDA carries a 0.20% asset-based charge that includes advisory and underlying exchange-traded fund (ETF) expense ratios. Meanwhile, the PAS service carries an annual advisory fee of 0.30%, well below the 1% asset-based fee that traditional financial advisors typically pay. However, PAS has a minimum account balance of $50,000, compared to the $3,000 minimum of the VDA service.
“At 0.20% per year for advisory and underlying fund fees, Vanguard Digital Advisor isn’t( the cheapest entry-level offering, but it is most likely to serve new investors well for its cost in relation to value,” the Morningstar study stated. “The same is true of Vanguard Personal Advisor Services for those with more-complicated needs or preferences. Its advisory fee starts at 0.30%, which is relatively cheap for a higher-end service that combines automated features with human financial advisors.”
As for portfolio construction, the VDA offering relies on four broadly diversified ETFs that focus on U.S. and international stocks, as well as U.S and international bonds. This robo-advisor also uses the Vanguard Life-Cycle Model to create “more than 300 glide paths based on an investor’s age, goal(s), and risk tolerance,” Morningstar noted.
While the PAS offering typically uses the same four ETFs to build portfolios, investors can also allocate their assets to Vanguard’s three Advice Select active strategies, which is not an option for investors using VDA. Additionally, PAS clients with $500,000 in assets are assigned a certified financial planner (CFP), whom they will meet with twice a year.
Robo-Advisors vs. Financial Advisors: Which Is Right for You?
While Vanguard offers highly rated services, some investors may need more guidance than what’s traditionally offered by robo-advisors. Human advisors, especially those with specific credentials or accreditations within the financial services industry, can typically offer a wider range of services to individual clients. Many offer comprehensive financial planning services that may include retirement planning, charitable giving, saving for college, tax planning and other financial needs.
“Decades ago, financial advisors focused on adding value by picking stocks or actively managed mutual funds for their clients. With the shift toward fee-based advisory models, however, hands-on investment management is no longer a primary part of the value proposition for most financial advisors,” the Morningstar researchers wrote in the report. “Instead, financial advisors can add the most value by helping clients sort through other complex financial issues, such as insurance planning, estate planning, stock-based compensation programs, and comprehensive tax planning.”
Robo-advisors, on the other hand, have only recently added basic features that go beyond portfolio management, including non-retirement goal planning and tax-loss harvesting. However, they also may be better suited for young investors or people with fewer assets to invest.
Accessibility is another benefit of a traditional financial advisor, Morningstar wrote.
“They also meet with clients on a regular basis, typically at least once or twice a year. More informally, they are often available for impromptu calls to advise on key investment decisions or to provide reassurance during periods of market turbulence.”
If you’re in the market for a robo-advisor, Vanguard offers the best platform for investors, according to a recent Morningstar report. The firm rated 16 of the leading robo-advisory platforms across a variety of categories, including price and portfolio construction. However, many investors require more than just portfolio management and stand to benefit from working with a human advisor who can help with tax planning, generate retirement income, charitable giving and even estate planning.
Tips for Finding a Financial Advisor
- If you are looking to work with a financial advisor, we can help you find one. Finding a qualified financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to three financial advisors who serve your area, and you can interview your advisor matches at no cost to decide which one is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
- When researching individual financial advisors and/or advisory firms, it’s important to do your due diligence. Make sure they are registered with the Securities and Exchange Commission, and as a result, adhere to fiduciary duty. This means they are legally required to act in your best interests.
- Find out whether the advisor is fee-only or fee-based. Fee-only advisors make money solely from the fees they charge their clients for advisory services. Fee-based advisors, on the other hand, may earn commissions for recommending certain products and services, like life insurance. This can create a conflict of interest, as the advisor has a financial incentive to recommend particular products over others.
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