Investopedia is dedicated to providing investors with unbiased, comprehensive reviews and ratings of financial products and technology. Since 2009, when mobile apps became mainstream, robo-advisors have become an important part of the investing and financial technology ecosystem and are becoming widely used. But not all robo-advisors offer the same services or cater to the same types of customers. Some are designed for active investors, while others are targeting customers who are looking to manage their finances, savings, and family budgets.
We are committed to helping users at all levels find the right robo-advisor for their needs. To that end, we’ve designed a comprehensive ranking methodology to find the best overall robo-advisors and the best robo-advisors across nine key categories.
The Review Process
We designed a system that rates robo-advisors based on nine key categories and 51 variables. Each category covers the critical elements users need to thoroughly evaluate a robo-advisor.
To evaluate these platforms, we sent questionnaires to the participating robo-advisors. Many of the companies we reviewed gave us socially-distanced video demonstrations of their platforms and services during the period of August 2021 – November 2021.
From the questionnaires, the hands-on testing of the platforms, and the platform demonstrations, we scored each category and then combined the category scores into an overall rating for each robo-advisor. Each category covers the critical elements users need to thoroughly evaluate a robo-advisor.
The Evaluation Categories
With the individual investor in mind, we took a critical look at the services and technology provided by robo-advisors. We organized our analysis into nine categories, scoring each advisor across multiple variables to rate performance in every applicable category. The score for the overall award is a weighted average of the categories.
Each investor has different needs. For instance, beginners need a robo platform with an easy-to-use interface and educational resources, whereas more advanced users need risk analysis tools, trading platforms, portfolio management, and more goals-based options.
Investment Advisors vs. Broker-Dealers
There are two types of firms offering automated portfolio services. For regulatory and legal reasons, their services differ considerably. Firms registered as investment advisers are allowed to help their clients determine goals and can offer specific and directed advice. Firms registered as broker-dealers are restricted from offering targeted advice, but they have more flexibility in terms of offering features such as customizable investment choices and margin lending.
A Note on Portfolio Performance
We have chosen to exclude portfolio performance from our review criteria for several reasons. The main reason is that every customer has specific, individualized goals when it comes to investing through a robo-advisor. Some look for a more conservative approach, while others seek aggressive growth. In addition, all investors have different start dates and end dates. Since these services are designed to be used over a very long period of time, ranking their performance against benchmarks like the S&P 500 or the MSCI All World Index over a time frame like a single year or even over three years misses the personalization that these platforms offer.
Another reason is that each of the providers has, on average, more than 20 portfolios available, and several providers have ways to customize portfolios so that the possibilities are endless. It’s impossible to compare apples to apples. We have chosen, instead, to focus on the overall experience of using one of these providers. As such, we hone in on how you can plan for and set goals, as well as how transparent each robo-advisory service is when presenting information to clients.
Who Are They Best For?
Since clients use robo-advisors for financial planning, investing, and tracking their goals, we also ranked the various platforms for their strengths and weaknesses across the following categories:
- Best for Goal Setting – For those robo-advisors that are more geared to personal financial goal tracking, we awarded the platforms that provided the most assistance in developing and setting goals, as well as the most user-friendly experience.
- Best for Sustainable Investing – Many of the robo-advisors we reviewed offer SRI options and highlight them in their product offerings. Given the increased interest in SRI, ESG and Sustainable Investing, we awarded the platforms that offered the best options in this category, including asset selection, research, and educational material.
- Best for Beginners – We looked for the platforms that offered the most guidance along the way, including educational tools to help beginners grow into the next level. A simple way to get started along with a logical workflow are important considerations in this category.
- Best for Sophisticated Investors – Some investors want to have portions of their portfolios managed, so we looked for platforms that offer flexible, personalizable investing choices and research amenities. We also looked for advanced account services such as the ability to take out a loan backed by the investor’s portfolio balance.
- Best for Cash Management — This is the robo-advisor with the most flexible tools for managing a client’s cash holdings. That includes an automatic sweep of excess cash into a higher interest-paying account or money market fund, plus banking services such as check writing and bill paying.
- Best for Low Costs — The robo-advisor that charges the lowest fees across a range of account sizes. This score includes fees for closing an account or issuing checks and wires.
- Best for Education — We evaluated education opportunities built into the robo-advisor itself as well as the clarity of the service’s FAQ.
- Best for Portfolio Contents — This category is the robo-advisor with the highest score described below in the Portfolio Contents category. A high score requires socially responsible portfolio choices that include individual stocks, and a wide selection of non-proprietary ETFs and mutual funds.
- Best for Portfolio Management — The top robo-advisor in this category rebalances portfolios when they drift from goal, enables tax-loss harvesting or tax minimization strategies, offers clear reports on goal progress, and consolidates external accounts for reporting and analysis
- Best for Mobile App — All of the robo-advisors offer mobile access to their platforms. This category awards the firm with the mobile app that offers the same services as the desktop while also being easy to use.
Account Set-Up
This category gauges the level of simplicity in the sign-up process as well as the transparency of the firm’s offerings and fees.
In the modern age of investing, a simple and easy on-ramp is necessary to interest new and younger clients, especially for robo-advisors, who are working to break out of the status quo and existing standards.
With this in mind, we found it important to assess the following aspects of robo-advisor platforms in our account setup category:
- Online account setup
- Account minimum
- Ability to see portfolio contents prior to funding
- Customizability of portfolios
- Adjustability of portfolios based on goals
- Overall ease of the sign-up process
Goal Setting
The goal-setting category grades the extent to which you can define and track your investing goals.
Robo-advisors are designed to meet many different investors’ needs. While some may just want to beat the market and potentially make some money, others are looking to meet more specific needs. Robo-advisors who provide their clients with features that help set, plan for, and track goals scored well in this category.
To score robo-advisors based on these features we took into account the following features:
- Retirement: Are there resources to help clients calculate how much they will need to retire comfortably?
- Large purchases (home, vehicle, etc.): Are there tools, such as real estate and vehicle prices, to help clients set their targets?
- College savings: Are there college cost databases that clients can consult to set their savings targets?
- Other goals: Does the robo-advisor only have a few pre-set options for their clients to choose from or can clients create their own goals? Are there calculators and tools to help with these goals?
Account Services
Our account services category gauges the quantity and quality of the services that each platform offers.
There are a lot of robo-advisors in the industry. Some try to cover it all and some try to cover specific use cases. In this category, while it may be beneficial to have lots of features, this only really matters if the features are of high quality.
Access to the following features is how we based scores in this category:
- Automatic deposits
- Margin offerings and fees charged
- Sweep to a money market fund or high-interest bank account
- Interest paid on cash balances
- Banking services — checking, bill paying, cash transfers
- Borrowing against accounts
- Ease of withdrawal
- Placing trades for individual equities
Portfolio Construction
This section of our methodology determines what types of asset classes in which clients can invest. Since all of the robo-advisors offer exchange-traded funds (ETFs), we considered whether clients could invest in other asset types as well.
An ever-changing landscape of financial asset classes creates pressure for brokerages and robo-advisors and forces them to consider offering these new options. As these new options come into play, such as socially responsible investing or cryptocurrencies, brokerages and robo-advisors must evaluate them and determine if they are worthwhile for their businesses and viable investments for their clients. We looked at the mutual funds and ETFs offered to determine whether each robo-advisory service was making a wide range of fund providers available, with higher scores awarded to those who offer non-proprietary funds.
For our Portfolio Contents category, we looked to see if the following asset classes were available to clients:
- Individual stocks
- Mutual funds
- Fixed income
- REITs
- Socially responsible portfolio choices with a higher score for individual stocks
- Non-proprietary ETFs and mutual funds
- Other (cryptocurrency, forex, etc).
Portfolio Management
This section weighs how portfolios are managed and the features available for clients to monitor their portfolios. Two actions that affect a portfolio’s performance are rebalancing and, for taxable accounts, tax management. We studied what triggers a portfolio rebalance and how frequently it happens. We also looked at whether tax loss harvesting is available and what account size is required to turn this feature on.
Understanding portfolio performance and progress towards goals is one of the key services that robo-advisors can provide, so we looked at the reports available and the advice given when progress falls short. Robo-advisors that provide built-in portfolio analysis reporting which includes assets held at other financial institutions help their clients understand their overall net worth, which is part of understanding overall performance.
To evaluate portfolio management we looked at the following features:
- Frequency of automatic rebalancing
- Availability of tax-loss harvesting
- Reports on goal progress, including ways of shoring up portfolios that may fall short
- Consolidation of external accounts for reporting and analysis
User Experience
One of the most important features of robo-advisors is their ease of use. This is because robo-advisors, for the most part, are designed as an entry ramp to investing for the less experienced.
The following criteria were considered when grading user experience:
- Availability of iOS app and whether it offers all the functionality of the desktop view
- Availability of Android app and whether it offers all the functionality of the desktop view
- Desktop workflow and whether it follows a logical path
- Desktop usability and ease of finding the features needed when they are needed
- Mobile workflow and whether it follows a logical path
- Mobile usability and ease of finding the features needed when they are needed
Customer Service
This category assesses the process a customer must go through when something goes wrong, or when a customer needs some additional assistance. Our research associate made calls to all of the firms reviewed at different times of day, recording how long it took before a live person was available, and the quality of the answers provided.
Top marks in this category require the robo-advisor to give their clients access to the following methods of seeking help:
- Online chat for prospective clients
- Online chat for existing clients
- Low average time on hold
- Ability to speak with a real financial advisor with no additional fee
- Reasonably extensive customer service hours
Education & Security
This category evaluates what robo-advisors offer to educate their clients in an effort to get them more comfortable with investing and the markets as a whole. Here, we also take into account the security measures taken to keep their clients’ assets and information safe.
Top marks in this category require:
- High-quality videos helping clients understand how the service works and how it can help build wealth
- Clearly written articles and blog posts that help clients understand how the service works and how it can help build wealth
- Availability and depth of the site’s frequently asked questions
- Encryption level of platform
- Two-factor authentication for mobile access or for logging on to an unknown browser
- The availability and amount of excess SIPC Insurance
Commissions and Fees
This category evaluates the costs associated with using robo-advisors’ platforms and services.
We compared commissions for the services offered by each of the robo-advisors, giving more points for lower costs. We scaled the points awarded so that the lowest costs in the group earned the maximum number of points, with fractions (and occasional zeros) given to the more expensive robo-advisors.
To determine the score for this category we looked at the following aspects of each of the robo-advisors:
- Management fee tiers for different account balances
- Termination fees
- Average underlying fees for ETFs and MFs
How We Update the Data
Our robo-advisor rankings are based on all the information available at the time we performed our reviews. We concluded our findings on Sept 10, 2020. We realize that robo-advisors continually make platform adjustments, product improvements, and pricing changes, and the data we included in our reviews may change from time to time. We are frequently in contact with all of the companies we evaluated in our rankings to stay on top of their changes so that we can update our reviews at least once a month.
Conclusion
As we state throughout our robo-advisor reviews, each investor is unique and has different needs based on personal goals. We believe that our comprehensive review process covers those needs as thoroughly as possible given the information available to us at the time. While there will always be outliers, we are confident that we have applied the most useful methodology to review and rank robo-advisors according to the most popular use cases among users of these platforms.
We thank you for your trust.