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In addition to the robo-advisors discussed in Part I and Part II of our series, traditional investment companies, including Goldman Sachs, Vanguard, Schwab, and Merrill have developed their own robo-advisory services. These services allow companies to attract clients earlier in the investment process, as they are typically targeted toward younger investors and people with smaller accounts. The companies may then build a rapport with these investors before they are able to meet the minimums for full-service advising.
Given these companies’ longstanding successes and reputations, their robo-advisory programs are trustworthy options for someone looking to start saving for their retirement in a hands-off, low-cost way. If you or a family member already have an account with one of these firms, that could be a good reason to start your own account and try out their robo.
Some important things to consider when choosing a robo-advisor include the minimum investment required, the management fee, and the average expense ratio. The management fee is a percentage of your account balance that is paid to the robo-advisor for doing the work. Because the robo-adviser is automated, these management fees are typically lower than they would be if you were to hire a personal investment adviser. An expense ratio is the average expense ratio across the funds selected by the robo. The individual expense ratio will depend on your risk level, which will determine your specific allocation. Some robos include certain customized offerings that may also be of interest.
Goldman Sachs – Marcus Invest
Goldman’s new robo-advisory service, Marcus Invest, gives investors the unique ability to choose between three investment strategies, including one that focuses on socially responsible investments. The service requires a $1,000 minimum balance and charges a .35% management fee.
Of the service’s three strategies, “core” is the base strategy. It tracks market benchmarks and focuses on risk mitigation. The expense ratio for a core portfolio is from .05% - .16%.
The second strategy, called “impact,” is intended for investors interested in socially responsible investments. This strategy avoids investments in the coal, tobacco, and firearms industries. The expense ratio for an Impact portfolio is between .11% - .19%.
Smart beta is the most aggressive strategy: it seeks to outperform the market. Thus, it charges the highest expense ratio, .15% - .17%. However, this is also the only portfolio that includes Goldman ETFs, and Marcus will refund the expense ratios on these Goldman ETFs into your account.
Goldman’s offering of an impact investment strategy as well as a more advanced or aggressive strategy sets it apart from the other, one-size-fits-all robos.
Vanguard – Digital Adviser
Heralded by NerdWallet as the best low-cost robo-adviser of 2021, Vanguard is a great option for someone who wishes to limit their portfolio to four Vanguard ETFs. Vanguard’s minimum investment of $3,000 is more than Goldman’s. However, it has a significantly lower advisory fee of approximately .15% annually as well as an expense ratio that averages approximately .05%.
Vanguard Digital Adviser supports both Roth and traditional IRAs, as well as Vanguard-administered 401K(k) and Roth 401(k)s, pursuant to the plan fiduciary’s authorization. On top of that, its online retirement calculator allows you to create a personalized retirement plan, making this a great option for anyone in the planning stage of the retirement-saving process.
Vanguard’s low management fee is a plus, but it requires a much higher minimum initial investment than some of the other robos.
Schwab – Intelligent Portfolios
Schwab’s $5,000 minimum investment exceeds that of both Goldman and Vanguard. In addition, Schwab’s expense ratio is on the higher end at .11%, as compared to Vanguard’s .05%. However, it charges no advisory fee, which is rare when it comes to investment advisory services.
Schwab Intelligent Portfolios also allows for great diversification – it offers 81 different portfolios built from 53 ETFs across 10 fund families. This is a stark contrast to Vanguard’s Digital Advisor, which builds portfolios from only four of its own ETFs.
A potential downside to this robo is that Schwab portfolios tend to have large cash positions that may fall anywhere from 6% all the way up to nearly 30%. As a young investor, having a high cash allocation is not ideal. Investors can seek a higher return and take on more risk when they have a long-term horizon; keeping a large portion of your retirement portfolio in cash takes away from opportunities to gain returns on investments.
Merrill - Edge Guided Investing
Merrill’s robo-advisory process differs slightly from those mentioned above. Many robo-advisors operate using automatic algorithms. While Merrill’s service still utilizes this technology, it also integrates human oversight. The chief investment officer develops investment strategies for Merrill Edge and recommends ETFs and mutual funds that portfolio managers then purchase and sell. Investors are matched to a recommended investment strategy based on an introductory questionnaire, much like Schwab’s. As opposed to undergoing automatic rebalancing, accounts continue to be actively managed by people based on market conditions.
This hands-on service comes with a price: Merrill Edge Guided Investing charges a .45% annual management fee, the highest of the four robo-advisers discussed in this article. The base service requires only a $1,000 investment, while the human financial advisor option demands a minimum investment of $20,000. Further, if you want to add a human financial advisor to your account, the management fee spikes to .85%.
Conclusion
All four of these robo-advisory services make great options for someone looking to start saving for retirement. They are low-cost, low-maintenance options that allow you to grow your wealth with very little effort. In terms of choosing a service, consider how much you are able to invest initially and look out for high advisory fees and expense ratios. If social responsibility is important to you, consider Marcus Invest. Schwab allows for more diversification than some of the other robos given the number of funds it offers, but beware the high cash allocation that could come with it. Vanguard provides a simplified, streamlined investing approach using its own low-cost funds. Merrill involves personalized service.
If you have an account with any of these brokers and find that investing is time consuming, consider adding money to an account with the robo-advisor. If your family member has an account, and perhaps money is gifted within the family, consider opening an account with the robo-advisor at their brokerage. Or if you simply prefer an established name to one of the newer robos covered in parts I and II of this series, consider any of the robos discussed here and start saving today!
Jasmin Sethi is the CEO of Sethi Clarity Advisers (SCA), a boutique consulting firm providing expert regulatory and business strategic advice to companies in the financial services industry. As a Harvard trained lawyer-economist, she is a thought leader on issues pertaining to how the asset management industry and financial regulation impact ordinary individuals, and particularly, freelancers.
Abigail Morelli is a research associate at SCA and will be graduating from Temple Law next year. She is interested in financial regulatory law and its impact on retail investors, amongst other areas.
Advisor Perspectives welcomes guest contributions. The views presented here do not necessarily represent those of Advisor Perspectives.