?
2023 Robo-Advisor Landscape
Our take on the digital advice industry and the best options for
individual investors.
Executive Summary
The growth and refinement of the robo-advisor industry over the past 15 years have provided investors,
especially those of modest means, with access to diversified, professionally managed portfolios. Given
their low required account balances, modest costs, and ease of use, robo-advisors are a compelling
option for young investors who have less complicated financial situations. But choosing the right one
can be a challenge. This industry landscape report evaluates 18 leading robo-advisors while providing
data on up to 20. It focuses on the features and benefits that are most likely to help investors reach their
financial goals: fees, quality of investment advice, financial planning tools, and other factors.
Our
research found broad similarities among major retail-oriented U.S. digital advice providers in
investor engagement and advice delivery. Nearly all use questionnaires to gather information on client
goals, time horizons, and risk tolerance and then feed that data into advice engines that recommend one
of several portfolio options, typically consisting of low-cost, passively managed funds.
Pro
viders differ more in how much additional financial planning they offer. Most focus on digital
investment management and add some basic features. The top providers, however, offer comprehensive
tools, ranging from online-only counsel to on-demand access to human financial advisors.
Cost i
s another key differentiator. The median advisory fee among robo-advisors surveyed was 0.25% of
assets per year—much cheaper than traditional financial advisors' typical 1.00% levy. But specific fee
levels and how they are charged vary. The optimal fee structure depends on how much money clients
invest and whether they want basic investment advice or more-comprehensive financial planning.
Of th
e 18 robo-advisors evaluated, Vanguard Digital Advisor and Fidelity Go ranked first and second,
respectively, thanks to their low costs, nuanced asset-allocation approaches, broad range of financial
planning tools, and transparency. Though they made some improvements, Titan Invest and several bank-
affiliated providers were still the least attractive because of higher costs, poor transparency, or limited
financial planning tools.
Key
Takeaways
× Despite its growth potential, the digital advice industry still accounts for a small percentage of
investable assets in the United States.
× Dedicated digital advice firms often struggle to reach profitable scale, while the large brokerage firms
and wealth managers that acquire them often struggle to integrate their digital advice capabilities.
Morningstar Manager
Research
2
2 June 2023
C
ontents
1
Executive Summary
1
Key Takeaways
2
Introduction
6
Results
24
Industry History and Trends
2
8 Pricing
3
1 Risk-Tolerance Questionnaires
3
2 Portfolio Construction
3
9 Financial Planning Services
43
Features and Benefits
44
Robo-Advisors vs. Traditional Advisors
4
6 Conclusion
47 Appendix
Amy
C. Arnott, CFA
Alec Lucas, Ph.D.
Daniel Culloton
Drew Carter
Gabriel Denis
David Kathman
, CFA, Ph.D.
Elizabeth Templeton
Lan Anh Tran
Connor
Gallagher
Important Disclosure
The conduct of Morningstar’s analysts is governed
by Code of Ethics/Code of Conduct Policy, Personal
Security Trading Policy (or an equivalent of),
and Investment Research Policy. For information
regarding conflicts of int
erest, please visit:
http://global.morningstar.com/equitydisclosures
Corrections and Clarifications
Corrections
issued July 6, 2023.
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Page 2 of 51
× The typical robo-advisor playbook includes portfolios composed of passively managed, low-cost
exchange-traded funds with a range of risk levels. But asset-allocation ranges vary, and several
providers have added active or quasi-active strategies.
× The lines between robo-advisors and traditional financial advice continue to blur, as firms such as Ally
Invest, Merrill Lynch, and J.P. Morgan have added hybrid offerings that blend automated advice with
access to a human advisor.
× Vanguard and Fidelity Go stood out as the best options, although we also assigned above-average
scores to Schwab Intelligent Portfolios, Betterment, and Wealthfront.
× Titan Invest, E-Trade Core Portfolios, Merrill Guided Investing, UBS Advice Advantage, and Ally Invest
scored poorly because of higher costs, limited planning features, and/or a lack of transparency.
Int
roduction
The robo-advisor industry is more than a quarter century in the making, but it remains a story of
untapped potential, both for digital advice providers and the investors who stand to benefit. Indeed,
industrywide assets of around $740 billion as of early 2022
1
made up only a small fraction of the $31.4
trillion U.S. retail market, which Cerulli Associates defines as investors with $100,000 to $5 million of
financial assets. Meanwhile, even as access to low-cost portfolios diversified by asset class and region
has become the norm, leading robo-advisor providers have only recently added basic features, such as
nonretirement goal planning, and services like tax-loss harvesting aren’t standard yet.
As ro
bo-advisors compete for new business by adding investing and planning capabilities, it can be hard
to discern which ones are advancing or failing behind industry changes. Varied pricing models and often
poor transparency into underlying investments, where conflicts of interest and risks can lurk, complicate
matters further.
Thi
s paper surveys the industry landscape and assesses 18 major robo-advisor providers. Vanguard and
Fidelity received the two highest scores. We consider three others to be above average, and some
competitors aren't far behind. Several offerings, though, warrant caution, because of above-average
costs and/or transparency issues.
Defin
ition
The birth of robo-advisors reflects the confluence of many trends, including the growth of the internet,
the surge in popularity of ETFs and other low-cost investment options, and the decline of defined-benefit
pension plans. At the risk of oversimplifying, though, robo-advisors are the offspring of the marriage
between Modern Portfolio Theory and advanced computing power. In fact, Nobel laureate William
Sharpe, one of the fathers of the capital asset pricing model, founded in 1996 what would emerge as the
first robo-advisor, Financial Engines. Initially an online advice provider whose recommendations
investors had to implement on their own, the firm became a robo-advisor once it launched computer-
based discretionary asset management.
1 https://www.theroboreport.com/data/aum-statistics/
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Such algorithmic asset management is what separates robo-advisors from do-it-yourself trading
platforms and advice providers, on the one hand, and higher touch, personalized wealth management,
on the other. Morningstar's Michael Wong defines robo-advisors as platforms that offer automated,
semitailored strategic asset-allocation investment portfolios directly to retail customers.
2
Additional
services and financial planning tools are common, as is some access to human advisors, the "robo' or
"robot" moniker notwithstanding.
Exhibit 1
Robo-Advisors Fill Niche Between Discount Brokers and Traditional Wealth Management
Source: Morningstar. Wealth tiers are based on research from Cerulli Associates.
Scope
This research focuses on U.S.-based robo-advisors and digital wealth managers, most of which include
access to human advisors, that are widely available to individual investors, and it excludes those limited
to retirement assets. While it gives information on up to 20 providers, it assesses only 18. We didn’t
assess Ellevest because Morningstar has an ownership stake in the company. We also omitted J.P.
Morgan Automated Investing, which uses some funds that track Morningstar indexes. We did, however,
assess Betterment. Although Betterment's sustainability-focused portfolios include three ETFs tracking
Morningstar indexes, those funds claimed a small fraction of the firm's total assets as of Dec. 31, 2022.
This year we added three robo-advisors: Citi Wealth Builder, Empower Personal Wealth, and U.S.
Bancorp Automated Investor. Three robo-advisors from our 2022 study are not in this one: Capital One
sold its robo-advisor business in April 2022; BlackRock sold its direct-to-consumer FutureAdvisor
business to Ritholtz Wealth Management in February 2023; and Morgan Stanley has essentially
2 Wong, M.W. 2015. “Hungry Robo-Advisors Are Eyeing Wealth Management Assets? We Believe Wealth Management Moats Can Repel the Fiber-
Clad Legion.” P. 2.
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replaced its Access Investing with the E-Trade Core Portfolios service, which Morgan Stanley picked up
when it bought the online broker in 2020.
Our
18 assessments draw on a combination of regulatory filings and online information, along with
additional insights from robo-advisor survey responses, follow-up interviews, and product
demonstrations. Acorns, Citi Wealth Builder, Empower Personal Wealth, Marcus Invest, and UBS Advice
Advantage each declined our survey request or did not grant an interview, but we proceeded with
publicly available information, albeit with some adjustments for insufficient data (detailed below).
Meth
odology
We based our assessments on the factors most likely to help investors succeed. Our methodology draws
on the Morningstar Medalist Rating and other evaluations, such as our 529 college savings plan and
health savings account research as well as our Best Interest Scorecard methodology,
2
but it is tailored to
robo-advisors.
Our
assessments prioritized low, transparent fees; a robust risk-tolerance questionnaire; logical mapping
to portfolios; sound portfolio diversification that steers clear of questionable asset classes and
investment tactics; and a broad range of planning-related features.
We s
cored robo-advisors on a five-point scale in four categories: total price (30% weighting); the process
used to select investments, construct portfolios, and match portfolios with investors (30%); the provider
organization behind the digital platform (20%); and breadth of services (20%). We summed each
weighted component to arrive at an overall score, which we then used to rank the robo-advisors. Robo-
advisors with scores between 5.0 and 4.5 earned High assessments; from 4.4 to 3.5 were Above
Average, 3.4 to 2.5 Average, 2.4 to 1.5 Below Average, and 1.4 or below Low.
Sinc
e information about the risk levels, asset mixes, and underlying funds is essential for consumers to
make an informed decision before signing up, we assigned each offer that fell short a Quality of
Investments/Portfolio Construction score of 1 out of 5. This year, we penalized Citi Wealth Builder and
UBS Advice Advantage for insufficient disclosure, whereas in our 2022 study, we penalized two other
offers.
2 https://assets.contentstack.io/v3/assets/blt4eb669caa7dc65b2/bltb38f56957e3f90f1/best-interest-scorecard-methodology.pdf
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Exhibit
2 Morningstar's Robo-Advisor Assessment Criteria
Source: Morningstar. Data as of May 31, 2023.
Key assumptions and questions related to each of the four categories include:
Price (30%)
× Assumption:
× All else being equal, lower fees are better, but we also looked for transparency and pricing
models that align with investors' interests.
× Questions:
× What is the total annual cost (including underlying fund expense ratios) for an account with
a $15,000 balance, assuming no market fluctuations, and how does that cost change at
smaller and larger asset levels?
× Aside from asset-based fees, how does the platform make money off of client assets and/or
the client relationship?
× What role, if any, do fee waivers play?
Quality of Investments/Portfolio Construction (30%)
× Assumption:
× A seasoned team with strong resources selects investments and constructs portfolios that
emphasize client results over sales of questionable proprietary products that do not align
with investors' interests.
× Questions:
× Who is in charge, and what are their qualifications?
× Does the team select quality investments across a range of proven asset classes to build and
maintain portfolios with sensible allocations?
× How does the platform collect client-specific information on risk tolerance and other factors,
and how does that information influence portfolio construction?
× What drives investment changes?
Provider (20%)
× Assumption:
× The organization behind the robo-advisor is aligned with clients while demonstrating a
thoughtful approach, long-term commitment, and a track record of doing right by investors.
× Questions:
× Are topnotch investment research leaders in charge of the platform?
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× Does the platform stand on its own, or is it integrated into the firm's broader suite of
offerings?
× Are there potential conflicts between the ultimate owners of the firm and its clients?
Brea
dth of Services (20%)
× Assumption:
× Tools and services support holistic financial planning for varied investing goals.
× Questions:
× What is the breadth of investing and planning features available on the platform?
× Does the program include key features, such as account aggregation, tax-loss harvesting,
and planning for multiple goals?
× Do tools and services consider investors' total assets and tax situation?
× Do investors have access to humans, especially qualified financial professionals?
Resul
ts: Vanguard Tops the List Again
Vanguard Digital Advisor, and its premium sibling Vanguard Personal Advisor Services, once again
received the only High overall assessment, while Fidelity Go, Schwab Intelligent Portfolios, Betterment,
and Wealthfront repeated with Above Average assessments. Meanwhile, only Titan received a Low
assessment.
Des
pite the similarities of this year's results to those of 2022, there are important differences. SigFig
dropped to Average from Above Average as the one-time pioneer fell behind best-in-class rivals. The
overall scores among the Above Average robo-advisors also shifted. Betterment dropped from second to
a fourth-place tie with Wealthfront, partly driven by our concerns around Betterment’s expanded lineup
of portfolio options, including risky cryptocurrency-focused portfolios.
Vanguard is now the only robo-advisor to receive a High mark in three of our four categories after
multiple enhancements boosted its Quality of Investments/Portfolio Construction and Breadth of
Services scores to High from Above Average. Vanguard added ESG options, active equity and fixed-
income funds, and a municipal-bond strategy, which helped the former grade, and introduced tax-loss
harvesting to all its advice clients to lift the latter. Vanguard also improved the tax efficiency of its
onboarding process for clients who are new to the advice program. If those clients have embedded
capital gains in one or more of up to 90 Vanguard strategies, they no longer must sell those holdings.
Instead, Vanguard uses a completion methodology to round out their portfolio exposures.
Schwa
b Intelligent Portfolios, meanwhile, maintained its High Breadth of Service score. Schwab offered
tax-loss harvesting before Vanguard, and its overall suite of capabilities still compares favorably.
Vangua
rd remained the only robo-advisor with a High Price assessment. At as little as 0.20% per year for
advisory and underlying fund fees, Vanguard Digital Advisor isn’t the cheapest entry-level offering; but it
offers new investors the most value for its cost. Similarly, Vanguard Personal Advisor Services' starting
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advisory fee of 0.30%, while not the lowest for those with more-complicated needs or preferences, is still
cheap for a higher-end service combining automated features with human financial advisors.
A
lthough Schwab Intelligent Portfolios and SoFi Wealth appear to be bargains, concerns about each
kept their Price assessments at Above Average and Average, respectively. Schwab Intelligent Portfolios
charges no advisory fee for accounts with at least $5,000 but allocates a significant portion of client
assets to in-house cash accounts. That drags on returns in up markets while generating revenue for
Schwab, which receives the spread (or difference) between the revenue it earns on asset balances and
the yield it pays investors.
SoFi Wealth will be hard-pressed to maintain its current pricing, and it suffers from other weaknesses.
SoFi charges no advisory fee and has waived the expense ratios for its two proprietary funds that
together make up nearly two thirds of each portfolio's equity allocation. The service, part of what SoFi
calls its "Financial Services Productivity Loop" strategy, seems as much designed for making money
through cross-selling as for serving investment needs. Meanwhile, its two SoFi ETFs track growth
benchmarks, which could backfire if value stocks take an extended turn leading the market.
N
o robo-advisor received a perfect score, including Vanguard. Its Provider mark dropped to Above
Average from High because of a dubious partnership. Invest for Amex by Vanguard, launched in April
2022, offers Vanguard's digital financial planning to some U.S. American Express cardholders but
charges a gross advisory fee 30 basis points higher than Vanguard Digital Advisor's. The program also
levies additional fees that are contrary to Vanguard's reputation for keeping investors' costs low.
Th
e lowest-scoring robo-advisors were not all bad, either. For example, Titan, which ranked last with
Low scores in three of four categories, reduced its pricing and added more diversified portfolio building
blocks in the form of stock and bond ETF portfolios. These modest improvements are steps in the right
direction.
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3 Morningstar's Robo-Advisor Assessments
fees, while Low and Below Average signify the opposite.
-Trade Core Portfolios licenses certain services from Morningstar, including fund fact sheets and a risk-tolerance questionnaire.
To fa
cilitate further comparison between the robo-advisor offers we evaluated, we provide a brief
overview of each, arranged alphabetically below.
Acorns | Average
Acorns doesn't quite live up to the hype.
The c
ompany boasts prominent board members and investors, including stars Jennifer Lopez, Alex
Rodriguez, and Ashton Kutcher as well as finance authorities Richard Thaler, Shlomo Benartzi, and Harry
Markowitz. It stands out for its focus on micro-savings, with features that help investors round up
spending on everyday purchases to build an investment balance. It also offers an "Earn Program" that
provides rebates on purchases made through select companies. With no investment minimum and a
straightforward investment approach, it's easily accessible for beginning investors.
However, its subscription-based pricing model is pricey given its target audience. The company had
offered a $1 per month Lite option, but its cheapest subscription tier now charges $3 per month, or $36
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per year. That translates into 24 basis points for a $15,000 account but is steep (3.27%) relative to its
average account size of about $1,100.
Acor
ns lacks some key features. It offers automatic rebalancing but no tax-loss harvesting and few if any
planning-related features. Acorns' "Early" program includes Uniform Transfers to Minors Act/Uniform
Gifts to Minors Act accounts, which are suboptimal for at least two reasons: They're not tax-advantaged,
and account owners have full access to the funds when they reach the age of 21 in most states (18 in a
few). Acorns defaults these accounts into the Aggressive portfolio, which is also less than ideal for kids
approaching college age. Its approach to emergency savings is suboptimal, as well. Customers can set
up an emergency fund, which is a non-interest-bearing demand deposit. With other cash options now
yielding 5% or more, it’s unclear why anyone would find this option appealing.
Acor
ns offers a small number of portfolios corresponding to different risk levels (five Core portfolios and
four Socially Responsible Investing portfolios). Asset allocation is straightforward, and the quality of the
underlying investments (mainly from iShares, Vanguard, J.P. Morgan, and Goldman Sachs) is above
average. However, investors can now opt into a bitcoin ETF with up to 5% of portfolio assets or directly
invest in stocks with up to 50% of their assets.
The ma
nagement team seems heavy on tech and venture capital types and light on investment research.
Seth Wunder started as chief investment officer in October 2021 after working as a hedge fund
manager, but his record is largely unknown. CEO Noah Kerner also has retooled the firm's growth plans
after a scuttled 2022 IPO via a special-purpose acquisition company merger; for instance, in April 2023, it
bought U.K.-based child and teen banking startup GoHenry.
Ally I
nvest | Below Average
Ally Invest still has some attractive features for Ally Financial banking customers, but it has otherwise
ceded ground to rivals and now merits a Below Average assessment.
The
April 2016 acquisition of TradeKing paved the way for its May 2017 rebranding as Ally Invest.
Mitesh Patel, who had worked at Ally from 2009 to 2014, then rejoined in May 2018 to develop the
service. He works with an investment committee whose members participate in portfolio development.
Betw
een mid-2018 and late 2019, Patel and his team added investment options and some planning
capabilities while lowering the service's minimum investment to $100 from $2,500. Ally's current suite of
32 portfolios relies on inexpensive Vanguard and iShares ETFs and comes in two basic types: Market
Focused (2% cash allocation) for a 0.30% annual advisory fee and Cash Enhanced (30% cash allocation),
which has no advisory fee. Each type has a core, tax-optimized, and ESG version. All three versions have
five different allocations based on one's risk profile (conservative, moderate, moderate growth, growth,
and aggressive growth). There is also an income version of each type.
The portfolios include domestic market-cap tilts and varied regional exposures. For example, the Market
Focused Core Aggressive portfolio's 93% equity stake is divided among U.S. large-cap (33%), mid-cap
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(17%), and small-cap (6%) stocks as well as non-U.S. developed (30%) and emerging (7%) markets. A
tiered rebalancing approach is distinctive: The thresholds are smaller for asset classes with single-digit
allocations and larger for those with double-digit allocations, though Ally does not disclose those
thresholds.
In May 2022, Ally launched a wealth management service. It includes access to a human advisor
alongside the digital advisor for a tiered fee: 0.85% for a household’s first $250,000 in assets, 0.80% for
its next $750,000, and 0.75% for assets exceeding $1 million. Those fees, however, are high compared
with the premium offers of best-in-class rivals such as Betterment, Fidelity, and Vanguard.
Ally has other weaknesses. It hasn’t added capabilities like its competitors have. Features that have
become common, such as aggregation of outside accounts, multiple goal planning, and tax-loss
harvesting, are not available. Moreover, Ally defaults clients into the Cash Enhanced portfolios, whose
30% cash allocation may earn a competitive rate relative to other high-yield savings accounts but will
struggle to keep up with inflation and likely cause investors to miss longer-term gains available from
greater market exposure.
Bett
erment/Betterment Premium | Above Average
Betterment's broad range of services and value set it apart, but investors would be better served sticking
to its core offering and avoiding its gimmicky extras like cryptocurrency.
Bette
rment offers a lot for its below-average price tag. It charges a 0.25% asset-based, annual fee for
automated portfolio management. Advice is part of the offer, too, and investors who use multiple
banking and investment accounts can get help with retirement investing, goal planning, and prioritizing
and tax treatment on various accounts. On-demand access to an investment advisor via Betterment
Premium cost another 0.15%, or 0.40% per year in total, but Betterment is one of the few robo-advisors
that lets clients pay a $399 hourly rate for advice on specific situations like retirement, college savings,
marriage, or other planning topics. Lower-balance investors should note that Betterment raised rates for
clients with less than $20,000 to $4 per month. However, cash and all assets held at Betterment count
toward making the hurdle, and committing to monthly investments of $250 or more also gets investors
the lower 0.25% fee.
Bett
erment's cash offering may be useful for meeting its lower-fee threshold. Betterment paid an annual
percentage yield of 4.5% as of mid-June 2023. The entire balance up to a $2 million limit is FDIC insured
because Betterment works with partner banks that ultimately hold the deposits (Wealthfront does the
same, as does Vanguard in its cash-plus accounts).
Port
folio construction is well-thought-out. Betterment bases its allocation guidance on a simple risk-
tolerance questionnaire that focuses on the amount and timing of the money a client needs. It
documents on its blog how it builds and maintains various target-risk portfolios while also attempting to
maximize their tax efficiency. It is one of the few robo-advisors that employs glide paths to gradually
make client portfolios more conservative over time. Its Core portfolio series offers a mix of low-cost ETFs
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with exposure to major asset classes, such as U.S. stocks, developed- and emerging-markets non-U.S.
equities, investment-grade bonds, world bonds, and Treasury Inflation-Protected Securities. Betterment
tilts its U.S. equity portfolio toward value and smaller-cap stocks to generate higher expected returns. It
offers a growth-tilted companion series dubbed Innovative Technology, but the series overlaps with
Betterment's Core series, and it shows the firm's penchant for marketing to younger investors.
Bette
rment also offers target income, smart-beta, and sustainability-focused portfolios. In 2022, it added
four flavors of cryptocurrency portfolios—Universe, Sustainable, Metaverse, and Decentralized
Finance—for 1.0%, or 1.15% for Premium, 4 times the firm's general fee. It recommends investors put no
more than 5% of their total wealth in crypto.
Bette
rment’s disclosure hasn't been completely transparent, though. The SEC fined the firm $9 million in
April 2023 for not disclosing tax-loss-harvesting program changes and coding errors that cost about
25,000 clients a combined $4 million from 2016 through 2019. A long-running error in a robo's algorithms
is concerning, as is the lack of disclosure here.
Stil
l, Betterment offers robust core investment and financial planning options at reasonable costs, and
its website gives investors who want in-depth research and methodology documents plenty to read
before they invest. It's a strong competitor, especially for investors looking for a clean, easy-to-use
interface.
Citi W
ealth Builder | Below Average
Citi Wealth Builder's limited range of planning-related services and uncertainty owing to a recent
leadership change make it a less competitive player in the space.
The leadership change occurred on March 30, 2023, when Citigroup hired Andy Sieg to head its global
wealth arm. Sieg had been heading up Bank of America's Merrill Wealth Management unit. At Citi, Sieg
inherits an offering with a less-robust portfolio construction approach than its best-in-class rivals. Clients
must have a Citibank checking account to access the digital platform, which offers three categories of
portfolios—index, sustainability, and active—each with five risk tiers. Citi Investment Management runs
the ESG and active portfolios with its own models. In April 2023, Citi said it would bring the index
portfolios that Invesco had managed in-house. Each portfolio will continue to invest in a mix of stocks,
bonds, and short-term investments, depending on the client’s risk tolerance and time horizon, but Citi
doesn't disclose much else about its asset-allocation process or the funds it uses. Consequently, it gets a
score of 1 for portfolio construction.
On th
e positive side, Citi's flat advisory fee has dropped 30 basis points to 0.25%, the median of robo-
advisors we surveyed. Citi, however, removed fee waivers on the underlying strategies, which could
increase the offering's overall cost.
Despite the competitive fee, Citi's range of services is subpar. Clients can contact a coach at any point,
but the platform does not advertise financial planning capabilities and seems more service- than advice-
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focused. Citi promotes its coaches as contacts for client questions about the program, site operations,
technical support, and limited education and informational materials, but they don't provide investment
advice.
Citi’s services fall short in other ways. It does not offer tax-loss harvesting, for example. Like other bank-
offered robo-advisors, Citi Wealth Builder is a small part of its institution's wealth management arm and
another way to get clients in the door for more profitable services.
Empower Personal Wealth/Personal Capital | Below Average
Formerly the financial technology upstart Personal Capital, Empower Personal Wealth is now ensconced
in a North American insurance and asset-management conglomerate. Though it arguably helped create
the category, Empower opted out of our survey because it does not consider itself a robo-advisor but
rather a comprehensive wealth manager that uses digital tools to reach and serve the mass affluent. The
digital component of its services, which any investor can access online, makes it a hybrid offering that
falls within this report's scope. Based on what can be gleaned from public disclosures, though,
Empower's relatively high fees result in a Below Average assessment.
The firm helped create robo-advisors through entrepreneurs with connections to successful startups like
PayPal. They founded Personal Capital in 2010 as a digital financial planner and investment manager. It
eventually offered planning, budgeting, retirement, college savings, tax, and investing tools. Its Personal
Capital Dashboard became popular with younger savers and investors, especially acolytes of the
financial independence retire early, or FIRE, movement, whose adherents practice rigid frugality so they
can quit working while still young. Now known as the Empower Personal Dashboard, the service still lets
users track their spending, savings, checking, investment, and other accounts in one place and suggests
potential tweaks.
The firm’s status as an independent disruptor changed in 2020 when Montreal-based holding company
Power Corporation added Personal Capital to its collection of businesses, which include Great-West
Lifeco. By April 2023, Personal Capital moved its headquarters, changed its name, replaced its
leadership, and merged with Power subsidiary Empower Annuity Insurance Company of America. In
many ways, it is a brand-new company.
Empower Personal Wealth provides a comprehensive range of services, albeit for a steep fee. Those with
less than $250,000 in assets can expect more basic options—essentially ETF portfolios based on client
goals and risk tolerance; those with $250,000 to $1 million get more comprehensive advice, including a
dedicated certified financial planner and more customized portfolios that include individual securities; at
higher levels the firm layers in private banking and estate planning; individuals and families with more
than $5 million can invest in private equity.
This is a wide range of services, but it comes at a cost: 0.89% for accounts smaller than $1 million. The
annual levy declines with asset size, but no further than 0.49% for balances of more than $10 million,
which is still above average. Though smaller investors who accumulate enough money to walk away
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from the grind early may still find Empower's tools useful, the $100,000 minimum threshold for its
investment services means this offering is not for economic underdogs.
That said, Empower's strengths extend beyond its tools. It has an experienced investment team that
uses mostly low-cost ETFs. It can also use the size of its parent company to deepen and expand its
services or pass on economies of scale to its users. However, lower fees and more clarity on how it
builds portfolios and navigates potential conflicts of interest within the Power empire would help this
digital advisor's cause.
E-Trade Core Portfolios | Below Average
E-Trade's investment management and tech teams are streamlining their offering and pulling in
resources from new overseer Morgan Stanley, but it needs to do more to be a compelling service.
Since Morgan Stanley acquired E-Trade in February 2020, E-Trade has discontinued some of its legacy
products and services while preparing new research and advisement capabilities from Morgan Stanley
Wealth Management. What hasn't changed is its overall 0.30% advisory fee, which remains middling
and doesn't include underlying fund fees. The firm estimates that underlying fees should average
roughly 0.05% on its traditional Core Portfolios, but the SRI and Smart Beta portfolios cost more.
Additionally, though E-Trade allows nonclients to see the overall asset allocations in recommended
portfolios, it does not disclose specific holdings, which would further clarify the offering's fees. This lack
of transparency also makes it difficult to ascertain the effectiveness of the firm's portfolio construction
methodology.
E-Trade now relies on Morgan Stanley's macro research capabilities for capital markets assumptions on
key asset classes, but the investment team that built the firm's portfolios, which are broadly diversified,
do not shift greatly over time, hasn’t changed. The program's asset classes seem standard, ranging from
various flavors of U.S. and non-U.S. equities to taxable and municipal bonds. It also includes
sustainability-focused holdings in the SRI portfolios and factor-based funds in the Smart Beta portfolios.
E-Trade says it employs mostly cheap, beta-focused ETFs from third-party providers, but it's hard for
potential investors to verify the claim without a full list of underlying holdings.
The portfolio assignment process is also a mixed bag. After going through a short risk questionnaire, E-
Trade assigns clients to one of six target risk portfolios, ranging from aggressive to conservative. It
makes sense for E-Trade to prevent clients from altering their portfolio assignment more than one
degree higher or lower, but it does not consider risk capacity or adjust client portfolios based on time
horizon or investing goals. E-Trade plans to add features, such as tax-loss harvesting, which Morgan
Stanley Access Investing offered before it closed to new investors in October 2022. Access Investing will
eventually merge with other managed accounts like E-Trade Core Portfolios. Even with tax-loss
harvesting, though, E-Trade lacks other compelling features, such as integrated goal planning across a
variety of internal and external accounts and a way to seek more comprehensive counsel from financial
advisors.
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In fact, E-Trade has lost some features it once had. It shut its legacy hybrid robo-advisor and managed
accounts in 2021 and 2022. Morgan Stanley Wealth Management has a legion of financial advisors, but
E-Trade's offering currently does include access to this team. Despite some ad hoc access to financial
planning calls, E-Trade clients seeking more comprehensive advice must quit E-Trade and reenroll in a
Morgan Stanley Wealth Management managed account. This lack of integration is a problem, and E-
Trade still wasn't done integrating its back-office and operational systems with Morgan Stanley's as of
May 2023.
Overall, operational uncertainty, portfolio opacity, and lack of a compelling set of advice features merit a
Below Average assessment for E-Trade Core Portfolios.
Fidelity Go | Above Average
Fidelity Go stands out for its simple but effective approach, which draws on Fidelity's strong global
research and asset-allocation team. Many key executives within the Fidelity Strategic Advisors unit
overseeing this program have spent at least 15 to 20 years with the firm. Fidelity Go is free for accounts
with balances up to $25,000. Accounts above that level pay 0.35% annually, which automatically entitles
the investor to unlimited one-on-one coaching calls with a Fidelity advisor. Before 2022, such coaching
was only available to participants who opted into Fidelity Personalized Planning & Advice, a separate
premium service that has since been merged into Fidelity Go.
The program starts with a relatively thorough risk-tolerance questionnaire. Questions cover the investor's
investment goals, time horizon, household income, risk tolerance, investment experience, investment
knowledge, reaction to falling markets, emergency fund, spending as a percentage of income, likelihood
of unexpected future expenses, household financial situation including job security, and value of total
assets. Fidelity then uses this information to map investors to a taxable or retirement-oriented portfolio,
with each spanning seven different risk levels. The portfolios all focus on a short list of core asset
classes, such as U.S. stocks, international stocks, and intermediate core bonds; esoteric asset classes or
ESG-focused strategies aren't part of the offer.
Fidelity Go's 0% investment advisory fee for low balances makes it a compelling option for smaller
investors. The plan invests in a streamlined list of zero-expense-ratio Fidelity Flex funds, which keeps
total costs below average even for higher-balance participants who pay the 0.35% management fee.
The program also offers ongoing support. Text alerts and other communications let customers know how
they are progressing with their goals, as well as providing behavioral nudges to encourage long-term
investing. However, Fidelity Go does not currently offer tax-loss harvesting.
All Fidelity Go participants have access to tools for spending and debt management, while those with
balances above $25,000 also get unlimited advice and planning calls. Users can choose from a menu of
coaching solutions focused on different topics, including retirement planning and budgeting. In contrast
to Betterment and Schwab, not all of Fidelity Go's financial advisors hold the CFP designation, though
most do.
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Marcus Invest | Below Average
Lowering fees was a plus, but Marcus Invest's transparency is an issue, and Goldman Sachs' early 2023
retreat from its consumer business leaves this offering well behind most competitors.
After
falling 10 basis points in late 2022, Marcus Invest's 0.25% advisory fee is now in line with the
median of robo-advisors we surveyed. However, the firm also stopped offering a rebate to investors with
Goldman Sachs ETFs in their portfolios, which partially offsets the fee savings for some investors.
Clie
nts choose from three investment styles: Core, ESG, and Smart Beta. The styles share asset-class
allocations but use different ETFs to populate their portfolios. Established Goldman Sachs teams, such as
the Investment Strategy Group and Alternative Investments and Manager Selection, design and execute
the portfolios, which vary in increments of 10 percentage points from 100% fixed income to 100% equity.
The program bases portfolio selection on investors' stated investment time horizons and risk tolerances.
Once they receive a recommended portfolio, investors can choose that portfolio or one directly above or
below it on the risk spectrum. They can also opt to start over again for a new recommendation.
Mar
cus Invest lacks features like financial planning advice and tax-loss harvesting that come with top
robo-advisors, but poor portfolio transparency and the offering's viability are larger concerns. Goldman
doesn’t share allocation information with nonclients, which leaves would-be investors in the dark on
issues such as how much may be allocated to emerging markets in different portfolios. Further, when
Goldman splintered its consumer business in October 2022, it announced a strategic pivot away from its
Marcus platform. Then, in February 2023, the firm said it would sell part of its personal loan book. Robo-
advice appears safe for now, but the retreat from a consumer-focused business raises uncertainty here.
Merr
ill Guided Investing | Below Average
Merrill Guided Investing, or MGI, and its premium cousin Merrill Guided Investing with Advisor, or MGIA.
seem like afterthoughts within Bank of America Merrill Lynch's wealth management empire and merit a
Below Average assessment.
Lau
nched in 2017, MGI is a pricey bridge between Bank of America Merrill Lynch's self-directed
investing platform and its financial advisors. MGI's 0.45% advisory fee is hefty as is MGIA's 0.85% levy,
which adds a team of financial consultants and access to hybrid active/passive portfolios. Granted, as
members of the bank's Preferred Rewards program accrue assets, fees can drop to 0.30% and 0.70%,
respectively, assuming a balance of at least $100,000. Still, clients with $20,000 or less pay the full
advisory fee. As for underlying fund charges, since Merrill doesn't offer funds of its own, it primarily uses
cheap third-party ETFs. However, the fund options become more expensive in the sustainability-focused
portfolios and higher still for active options in the hybrid portfolios.
Por
tfolio construction is fairly standard, with five risk-tolerance levels across a handful of portfolio types.
Clients in MGI have access to both taxable and tax-aware core portfolios, which consist of low-cost
passive ETFs (the tax-aware version substitutes munis for taxable bonds), and a taxable-only
sustainability-focused passive offering that tilts toward holdings with better environmental, social, and
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governance scores. MGI has a $1,000 investment limit but puts clients with less than $5,000 into a
"strategic" version of one of these three portfolios, which employ one ETF per broad asset class,
including U.S. and non-U.S. equity, and bonds.
MGIA offers the same suite of portfolios (without the simplified Strategic Asset Allocation option). It also
grants access to hybrid active/passive versions of the three taxable, tax-aware, and sustainability
portfolios. Investors can see the asset-allocation details of these hybrid MGI portfolios without signing
up for the service but not the recommended active options themselves, which makes it difficult to
recommend the portfolios.
Merrill's short risk-tolerance questionnaire also could also be improved. Clients can gauge the likelihood
of achieving a set goal over timelines they provide while signing up, but MGI does not consider a client's
risk capacity, and an account’s funding level seems to play an undue role in the asset-allocation process.
Merrill's relatively active asset-allocation approach is unique. A large veteran team oversees macro
research, asset allocation, and manager selection for both simple passive ETFs and complex active
strategies. Through a series of investment subcommittees, team members determine both a set of
infrequently updated Strategic Asset Allocation targets, which represent broad weightings to equities
and bonds, and Tactical Asset Allocation targets. Team members update the latter at least quarterly,
though in practice more frequently. Shifts can be as minor as adjusting allocations between developed-
and emerging-markets non-U.S. equities or as major as adding a subasset class. The results of Merrill's
asset-allocation approach don't stand out, however. Composite returns provided for each target
allocation don't show an edge. The firm's historic preference for value stocks over growth stocks and
late-2022 decision to diversify across fixed income have not led to a significant net-of-fees performance
advantage versus asset-class benchmarks.
The platform's dearth of additional features is noteworthy given its relatively lofty fees and lack of
integration with Bank of America's more extensive, and impressive, research and educational offerings
on its brokerage platform. When setting goals, MGI's software suggests time horizon and contribution
changes if Monte Carlo simulations project a low probability of success. Yet, it doesn't provide more
extensive advice if it looks like clients won't hit their goals, nor does it provide tailored advice toward
achieving multiple goals. Tax-loss harvesting capabilities or integration of external accounts are absent.
MGIA also provides only access only to Series 6 and Series 7 certified "financial consultants" rather than
CFP-certified advisors. Clients who want access to CFPs must unenroll from this program and reenroll in
one of Merrill’s more extensive managed account or advisory relationship offerings.
Schwab Intelligent Portfolios/Schwab Intelligent Portfolios Premium | Above Average
Schwab's robo-advisor program narrowly misses greatness because of one fatal flaw.
Schwab Intelligent Portfolios—especially with the addition of the Premium service—comes closer than
most of its peers to matching the value-add of a human financial planner. The program's comprehensive
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financial planning services include advice on mortgages, college savings, retirement savings, retirement
income, and budgeting. Unlimited one-on-one guidance from a CFP professional is also available.
That makes Schwab one of the most compelling robo-advisors, with only Betterment and Vanguard
providing a similar range of financial planning tools and advice. Schwab's pricing is relatively attractive,
especially for higher account values. After paying a one-time $300 planning fee for the first year, an
investor with a $200,000 account would pay just $360 annually for Schwab's Premium account offering,
compared with $800 for Betterment, $700 for Fidelity Go, and $600 for Vanguard Personal Advisor
Services.
Schwab's portfolio construction process is also above average. It uses an extensive risk-tolerance
questionnaire to match investors with a portfolio designed for one of 12 risk levels. The portfolios
provide comprehensive asset-class exposure, including large- and small-cap stocks in the U.S. and
international markets, gold, TIPS, REITs, corporates, mortgages, Treasuries, high-yield bonds, municipal
bonds, world bonds, and emerging-markets debt. The quality of the underlying investment offerings is
solid, and Schwab takes a well-considered, research-based approach to portfolio construction. The firm
is also thoughtful about rebalancing and tax management.
Excessive cash allocations are an Achilles' heel, however. They range from 6% to 30% of assets
depending on the portfolio's risk level, which is a significant drag on returns for clients. Schwab's Total
Return Taxable Portfolio—8, which held about 63.8% of assets in stocks, 25.3% in bonds, and 8.9% in
cash at year-end 2022 is a case in point. The cash buffer helped it lose roughly 1 percentage point less
than the moderate allocation Morningstar Category average (negative 12.67% versus negative 13.84%)
during 2022’s bear market. But over the trailing five-year period through March 31, 2023, the Schwab
portfolio lagged that category norm by 1.9 percentage points per year, on average.
Even now that cash yields have topped 5% as of early June 2023 (and Schwab took the positive step of
linking the monthly yield on customers’ cash balances to Schwab Government Money Fund SWGXX),
above-average cash allocations will probably be a negative over longer periods. Schwab, meanwhile,
has an incentive to park customers' assets in its proprietary deposit accounts. Schwab paid $187 million
in settlements and fees for its previous disclosure practices related to its use of cash.
Even with this flaw, Schwab still ranks among the best robo-advisor options, especially for investors with
enough assets to benefit from its comprehensive advice on financial planning and retirement income.
SigFig | Average
SigFig is a lean offering that checks a lot of the right boxes for a robo-advisor, though it doesn't possess
the same scale of resources as some competitors.
Following its 2006 launch as an online forum for sharing investment ideas, what was then called
Wikinvest pioneered features now common among robo-advisors. After pivoting toward automated
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investment advice in 2011, the firm curated a group of financial advisors to provide in-person
consultations. It also introduced tax-advantaged and taxable portfolios as well as tax-loss harvesting.
SigFig's management fee remains competitive. The program is free for accounts with less than $10,000
and charges 0.25% for accounts at and above that size. It uses low-cost ETFs for its portfolios (the ETFs
differ depending on which custodian the customer chooses for the account) but does not waive or return
fees on these holdings.
SigFig's portfolio construction approach is simple but sensible. Allocations are strategic and updated
periodically, depending on the market environment and SigFig's capital markets assumptions. Those
allocations are generally reasonable, with equity weightings for taxable portfolios ranging from 26% to
90% of assets, depending on the risk level, and 13% to 85% for tax-advantaged portfolios. Regardless of
risk tolerance, however, all the tax-deferred portfolios allocate at least 7% of assets to emerging-markets
debt, which seems aggressive, as well as 5% to REITs. In addition, the portfolios rely on one broad index
for U.S. stock exposure, with no granularity for separate style or market-cap allocations.
The firm's executive team appears well-resourced, although a few senior leaders have left in recent
years. Chief investment officer Terry Banet, who joined in 2011, has extensive experience from
investment research and asset-allocation roles at J.P. Morgan and elsewhere. The firm's size peaked in
2019, however, and appears to have shrunk significantly since.
The service has some weaknesses. It does not provide advice for multiple investment goals and lacks
more dedicated educational resources that could help clients make SigFig their one-stop shop. In
addition, the privately held firm's focus on partnering with larger corporations like UBS and Wells Fargo
raises questions about whether it will remain a stand-alone robo-advisor. Several stand-alone robo-
advisor firms have been acquired in recent years, and SigFig's small size and limited revenue base could
make it a more likely acquisition target than some of its peers.
SoFi Wealth | Average
SoFi clients can start a robo-advisor account with as little as $1 and talk with a financial planner at no
additional cost. While those attributes are attractive, the service has some questionable features that
lessen its appeal.
Originally a student loan refinancing service, SoFi has expanded into personal loans, mortgages, banking
services, and insurance. The company launched SoFi Automated Investing in 2017. SoFi's business
strategy relies on retaining clients in its ecosystem of personal finance products. The company calls this
the "Financial Services Productivity Loop," which emphasizes monetization through cross-selling as
much as serving investment needs. As a publicly traded firm since June 1, 2021, SoFi is now under
pressure to generate earnings, but it has lost a total of $1.5 billion since 2018. That raises concerns
about SoFi's client acquisition strategy in comparison to loss-leader approaches used by profitable firms
like Fidelity.
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Despite its losses, SoFi has been waiving the 0.19% annual fees for the proprietary ETFs it uses as the
main equity exposure in clients' portfolios. This is likely an asset-gathering strategy for the two ETFs,
which have around $500 million in assets combined. Should those waivers expire, the ETFs' expense
ratios would no longer be in line with SoFi’s low-cost aims.
These two SoFi ETFs also have an inherent growth bias that might not be suitable for a core equity
allocation. While SoFi does offer five different equity/fixed-income allocations, depending on client risk
tolerance, the growth-leaning ETFs still account for two thirds of the equity exposure. The portfolios also
tilt more toward U.S. stocks than broad global benchmarks. These two biases have enhanced back-
tested results that SoFi marketing material has used to promote its offer's performance versus a blended
benchmark that also includes a 0.48% management fee, even though benchmark-tracking passive
options are available for a fraction of that fee.
SoFi offers clients access to financial advisors by phone, virtual meetings, and electronic messages at no
extra charge. SoFi's advisors must have Series 65 licenses and either have the CFP designation or be
actively working toward it. SoFi also provides an online library of articles on a broad range of topics
including goals, saving, investing, budgeting, debt repayment, home buying, and insurance. These
articles might double as marketing for its various personal finance services, though.
Titan | Low
Despite making several improvements, Titan remains aggressive, narrowly focused, and unproven; it
remains the least attractive robo-advisor among those evaluated.
Pricing is better. Titan eliminated a monthly fee for accounts with less than $10,000 and dropped its flat
1% asset-based charge for accounts with $10,000 or more in favor of a tiered, asset-based levy ranging
from 70 to 90 basis points, depending on asset size. When it rolled out stock and bond ETF portfolios in
2023, it also chose not to charge a management fee on top of those of the underlying funds, which
dropped the blended fee for a $15,000 account to 0.495%.
Titan's charges remain above average, however, and the underlying fees of some of the strategies in its
client portfolios are very high. Titan styles itself as a lower-cost wealth manager for younger, tech-savvy,
up-and-coming investors who still cannot afford a private banker, but it is far from a low-cost option.
Increased diversification is laudable. The firm added broad stock and bond strategies to the mix of
options it uses as building blocks for clients. Sample portfolios provided to Morningstar now rest on a
foundation of cheap, diversified equity and fixed-income ETFs. Client portfolios had previously included
only Titan's in-house concentrated equity and cryptocurrency accounts and a handful of third-party,
closed-end funds.
Those problematic options remain, though. The external closed-end funds invest in esoteric asset
classes, such as private credit and venture capital, that most investors do not need and would not miss.
Meanwhile, Titan's in-house strategies have mixed records, at best, and are concentrated and risky. Its
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three equity strategies invest in 15 to 25 stocks each, with Flagship focusing on U.S. large caps,
Opportunities on U.S. small- and mid-caps, and Offshore on non-U.S. companies. Titan Crypto has
simplified its strategy—from shifting among five to 10 digital currencies to holding equal weights of
bitcoin and ethereum and rebalancing quarterly—but it remains wildly volatile, vaulting 58% in 2023's
first three months after dropping more than 72% throughout 2022.
Titan plans to develop its services further, but it is not a holistic planner. It does not provide tax advice or
manage its portfolios to minimize tax consequences, which means rebalancing portfolio allocations
among its volatile equity and crypto strategies can result in big tax bills for taxable clients. Titan uses
client information to place them in aggressive, moderate, or conservative portfolios. It tries to hedge its
in-house strategies: 0%, 5%, and 10%, respectively, when not in a market downturn, and 5%, 10%, and
20% during one. Titan uses technical signals to differentiate a hedge-worthy downturn from normal
volatility, a notorious challenge even for investors who are not also trying to build and run a digital
wealth management platform.
Titan's in-house active management team continues to lack depth and experience. The five-member
squad averages fewer than three years with Titan and nine in the investment industry. The firm's chief
investment officer and most senior investment team member Clayton Gardner just hit 10 years of
industry experience in July 2022 and serves as co-CEO and co-founder.
Titan has made strides, and it provides younger investors who have smaller account balances access to
asset classes that are usually the reserve of older and more well-heeled clients. But compared with
other robo-advisors, its fees are not competitive, its portfolios aggressive, and its advice offering a work
in progress.
UBS Advice Advantage | Below Average
UBS has been busy lately, but its Advice Advantage program doesn't seem like a priority.
UBS' priorities shifted with its March 2023 acquisition of Credit Suisse and then shifted further with
Sergio Ermotti’s April 2023 return as CEO, a role he held from 2011 to 2020. Ermotti, who will oversee
the Credit Suisse integration, has a different approach to the future of wealth management than his
predecessor at UBS, Ralph Hamers. Ermotti wants to focus on the rich and avoid going downstream to
bring in new clients, while Hamers emphasized mass-oriented digital offerings like the Advice
Advantage program and well-respected competitor Wealthfront, which UBS tried to acquire in early
2022. But that acquisition fell through in September 2022, and since then it has not been clear how
Advice Advantage fits into UBS' plans, especially given Ermotti's priorities.
Meanwhile, hefty costs and poor transparency remain significant negatives for UBS Advice Advantage.
The program's 0.75% annual fee makes it among the priciest robo-advisors, and those fees are in
addition to underlying fund expense ratios, which are difficult to determine because UBS does not
disclose the funds it uses. Although UBS halved its account minimum to $5,000, it is still less accessible
than some competitors.
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UBS Advice Advantage leverages SigFig's algorithm, as it has since the program’s 2018 debut. It offers
investment advice, custody, trading/execution, and performance reporting. Investors can choose from
five different portfolio risk levels based on a standard risk-tolerance questionnaire. UBS develops and
maintains the model portfolios while using the algorithm for ongoing monitoring, rebalancing, and tax-
loss harvesting. UBS portfolio allocations draw from its capital markets assumptions and related
strategic asset allocations as well as covariance estimates. However, key executives listed in Form ADV
are all part of UBS' larger Wealth Management platform, so it is unclear whether this program has a
dedicated investment management team. In addition, UBS' lack of transparency extends not just to the
funds it uses but to the asset classes themselves.
UBS Advice Advantage includes access to financial advisors as well as portfolio diagnostics, which
incorporate outside holdings. It seems to play a secondary role within UBS' larger universe, though.
With
a disappointing amount of publicly available information, no details disclosed about underlying
funds, and its viability in question, this offering deserves little credit.
U.S.
Bancorp | Average
U.S. Bancorp Automated Investor is a straightforward offering that delivers on its simple promises.
U.S.
Bancorp launched Automated Investor in 2018 and lowered the minimum investment from $5,000
to $1,000 in 2021 as part of a product revamp. The service charges a flat fee of 0.24%, lower than the
average annual fee from surveyed providers. A matrix of three major goals and five risk levels sorts client
portfolios into varying allocations of global equity and U.S. fixed-income ETFs, which is adequately
granular.
Well-constructed portfolios stand out as the service's strong point. The service automatically applies
glide paths for clients with a retirement or major purchase goal, a useful yet still rare feature among
other providers. This scales down the portfolio's equity exposure as the end date approaches to limit risk
and maximize capital preservation. The underlying funds consist of low-cost, third-party ETFs tracking
sensible indexes, which provide access to a standard range of asset classes. The nontaxable portfolio
holds a diversified mix of large- and mid-cap U.S. equity, real estate, developed- and emerging-markets
equity, alongside core and high-yield U.S. bonds. The tax-efficient version swaps the core bond exposure
for a broad municipal-bond ETF. U.S. Bancorp does not put clients' assets in any gimmicky products or
niche market areas, in line with its long-term, goal-oriented investment philosophy.
A third-party trading algorithm automatically rebalances the portfolios and harvests losses for taxable
accounts. Tax-loss harvesting capabilities notwithstanding, U.S. Bancorp lacks core features such as
retirement withdrawal advice or outside account aggregation that prevent it from being a one-stop shop
for clients. Its simple three-question risk assessment could also use improvement.
The service is currently only available to existing U.S. Bank customers, though the firm plans to open the
platform to nonbank customers soon, likely as part of an effort from parent U.S. Bancorp to branch out to
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lower-net-worth clients. Despite well-publicized turmoil in regional banks earlier this year, U.S.
Bancorp's stable market position as the fifth-largest U.S. bank has shielded it from severe stress thus far.
Vanguard Digital Advisor/Vanguard Personal Advisor Services | High
Vanguard Digital Advisor, or VDA, and its hybrid sibling Vanguard Personal Advisor Services, or PAS,
which combines automation with human expertise, once again earn the top spot among robo-advisors
we surveyed. In fact, Vanguard has extended its lead through multiple enhancements, with only an
uncharacteristic pricing misstep keeping it from a perfect score.
Vanguard has been in the advice business since 1996, but it did not move into discretionary asset
management until the respective May 2015 and May 2020 launches of PAS and VDA. Aiming to
transform advice in the same way its retail indexing business revolutionized investment management,
Vanguard has spent heavily on both services through hiring personnel, increasing choice among
investment strategies, and adding capabilities. In recent years, Vanguard has introduced ESG options,
active equity and fixed-income funds, and a municipal-bond strategy. Tax-loss harvesting is now
available to all advice clients, who also benefit from tax-efficient implementation, including a completion
methodology that tailors exposures around 90 existing Vanguard strategies so investors transitioning to
VDA can avoid realizing capital gains on existing holdings.
The core of VDA, however, remains its four broadly diversified passive ETFs focusing on U.S. and non-
U.S. stocks and U.S. and non-U.S. bonds along with a portfolio construction approach that combines
relative simplicity with customization. Using those ETFs, or similar exposures crafted from Vanguard’s
advice-eligible investment options, VDA draws on the Vanguard Life-Cycle Investing Model to create
more than 300 glide paths based on an investor's age, goals, and risk tolerance. The risk-tolerance
assessment uses third-party Capital Preferences' well-researched scenarios. VDA then evaluates
portfolios daily and rebalances when any asset class is off target by more than 5 percentage points. The
glide paths are updated annually as model inputs change.
VDA and PAS have evolved into an ecosystem of advice, united by a common investment philosophy,
similar if not identical investment strategy building blocks, and low costs. Where they differ is in the
degree of customization and suite of services available. Clients with at least $3,000 can enter the digital-
only version of that ecosystem, VDA, for as little as 0.20% per year (including underlying fund fees) and
utilize an impressive array of planning tools, including outside account aggregation, custom goal
planning, debt planning, a rainy day tool, healthcare estimator, and Medicare match. Clients with at
least $50,000 can opt for the hybrid PAS service for a 0.30% annual advisory fee (not including
underlying fund fees) and have unlimited access to a pool of CFPs, who can further customize their
portfolios around non-Vanguard fund holdings and individual stock ownership. At $500,000, clients
receive a dedicated CFP who touches base at least twice a year. Clients with more than $5 million have
access to a private equity option and estate planning and trust services, all for declining fees that drop
to 0.20% for assets exceeding $5 million to $10 million, 0.10% for the next $15 million, and 0.05% for
assets above $25 million.
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The pricing misstep affected Vanguard's Provider score as it involves the "Invest for Amex by Vanguard"
partnership. Although that partnership has become more attractive since its April 2022 debut by
dropping its investment minimum to $3,000 from $10,000, for example, its gross advisory fee remains 30
basis points higher than that of Vanguard's in-house offering. American Express reward points, which
begin tallying once an account has $50,000, may make up for some of that difference but not all of it.
More problematic still, the partnership’s additional fees run counter to Vanguard’s generally rock-solid
commitment to keeping costs low and avoiding layered fees. Indeed, from 2021 to 2022 Vanguard's non-
U.S. fund business returned $125 billion in assets to their institutional owners because those institutions
had been acting as intermediaries in layering on fees that hurt end investors.
Overall, though, Vanguard continues to set the standard for low-cost digital financial advice.
Wealth
front | Above Average
Wealthfront has considerable merits, but strategic shifts and questionable allocations hold it back.
The merits start with competitive fees. Its 0.25% annual advisory charge matches the median of robo-
advisors we survey while the expense ratios for most of the underlying funds used in the portfolios are
reasonable. The quality of the underlying funds is also generally strong; most of them receive
Morningstar Medalist Ratings of Gold or Silver. The program includes a thorough questionnaire that
incorporates behavioral economics research to evaluate both risk tolerance (an investor’s subjective
willingness to take risk) and risk capacity (their objective ability to take risk given their financial assets
and other resources).
Wea
lthfront uses the responses to slot investors into a portfolio matching one of 20 risk levels spanning
three account types: taxable, retirement, and socially responsible investing. Customers also have access
to financial planning tools, though not to human financial advisors, for spending, savings, income,
inflation, Social Security, taxes, college planning, and home equity. The website includes information on
a wide range of planning-related questions, as well as numerous methodology papers and performance
disclosures.
In addition, Wealthfront has one of the best user interfaces we’ve seen. The program’s goal-centric
approach is specifically designed to help investors focus on the long term. Investors can set multiple
goals and experiment with various assumptions to see if they're on track or not. Wealthfront also takes a
more precise approach to tax-loss harvesting that incorporates direct indexing, which enables it to
harvest losses at the individual stock level. It embraces a "play-to-learn" philosophy that lets investors
buy and sell individual stocks, but still encourages them to build diversified portfolios.
Stil
l, popular but not necessarily prudent investment trends seem to drive some of Wealthfront's
strategic decisions. Many of its portfolios are on the aggressive side; for example, its retirement
portfolios allocate up to 19% to emerging-markets stocks, 15% to real estate, and 10% to emerging-
markets debt. It previously opted investors into a risk parity strategy that ranked in the global allocation
Morningstar Category's bottom 2% for the trailing five-year period through May 2023. Wealthfront also
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allows investors to invest up to 10% of their assets in cryptocurrency through Grayscale Bitcoin Trust
GBTC and/or Grayscale Ethereum Trust ETHE, which are high-cost vehicles whose grantor trust structure
leads to significant performance divergences from the benchmark. Finally, Wealthfront had previously
agreed to be acquired by Swiss banking giant UBS, but the two firms have now mutually agreed to
terminate their merger agreement.
Ove
rall, though, there are more positives than negatives here.
Wel
ls Fargo Intuitive Investor | Average
Wells Fargo Intuitive Investor's recent improvements aside, it remains a middle-of-the-road offering,
though not a bad choice for existing Wells Fargo clients.
Des
igned exclusively for those who are already banking clients, the program's 0.35% asset-based fee is
10 basis points higher than the median of robo-advisors we surveyed, but the investment minimum has
fallen to $500 from $5,000 a year prior. Expense ratios for the underlying funds are between 0.07% and
0.15%, however, which partially offsets the impact of above-average fees at the program level.
Like
UBS, Wells Fargo uses SigFig's proprietary portfolio management algorithm to monitor, rebalance,
and harvest tax losses. Investors begin with a questionnaire that assesses risk tolerance, time horizons,
and specific investment objectives. Clients can move up or down one risk level from the recommended
investment objective. Suggested asset-allocation strategies include a series of nine portfolio risk levels
with a globally diversified overlay or sustainability-focused one, which Wells added over the past year.
Each portfolio comprises seven to 11 ETFs, mostly iShares ETFs and Goldman Sachs Smart Beta
products. Wells Fargo intends the portfolios to be well-diversified, cost-effective, and long-term-
oriented, thanks to an investment philosophy that shies away from niche products. Portfolio allocations
are reasonable, with minimal cash allocations and adequate exposure to major asset classes. In addition,
portfolio transparency has moderately improved.
The
breadth of services is average. Access to a financial advisor at no cost and tax-loss harvesting are
positives. So, too, are goal-oriented resources to help investors stay on track, and Wells Fargo has made
some efforts to offer educational content for beginning investors. Unlike some best-in-class providers,
though, it doesn’t offer investment calculators or methodology papers.
Indust
ry History and Trends
Robo-advisors emerged from two major trends in the early 2010s. First, online, self-driven brokerages
from outfits like E-Trade and Schwab grew rapidly; and second, financial startups capitalized on distrust
of traditional wealth management institutions in the wake of the global financial crisis.
Clien
t acquisition and retention were the main challenges during this early period, especially for stand-
alone startups. To broaden their appeal, most surviving providers have converged toward providing
portfolios composed primarily of low-cost ETFs. For instance, Wealthfront's predecessor KaChing began
as a stock-picking platform. KaChing's original business model of identifying "genius" stock-pickers and
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allowing the retail audience to invest alongside them did not last. Between its 2008 founding and early
2012, the platform remade itself into a full-fledged robo-advisor, offering portfolios of ETFs optimized
according to risk tolerances. In late 2012, it hired as its chief investment officer Burton Malkiel, the well-
known author of A Random Walk Down Wall Street and advocate of low-cost passive strategies.
Other startup robo-advisors followed similar trajectories. SigFig began in 2006 as Wikinvest, an online
repository for user-generated stock recommendations, before pivoting to automated portfolio advice in
2012. SoFi launched in 2011 as a peer-to-peer student loan financier before expanding to other services
later in the decade. Only a few providers, such as Betterment and Acorns, have stuck with the now-
popular automated robo-advice service since their public launches.
Several successful robo-advisors emerged from acquisitions. Ally Invest stems from Ally Financial's June
2016 acquisition of TradeKing, which since 2014 had been offering its own robo-advisor (developed with
Morningstar's Ibbotson Associates). Empower Retirement purchased Personal Capital in 2020, which
since its 2011 launch had offered free account aggregation tools and pricier wealth management
services, and renamed it Empower Personal Wealth in February 2023.
Failed acquisitions and integrations outnumber successes, however. NestWise, a subsidiary of LPL
Financial Holdings LPLA, acquired the hybrid service Veritat Advisors around mid-2012 to serve middle-
class savers. By Sept. 1, 2013, LPL closed the business. John Hancock acquired robo-advisor Twine from
Guide Financial in 2015 and shut it down in December 2021. LearnVest, which had launched in 2008,
was bought by Northwestern Mutual in 2015 but shut down three years later. Principal Financial Group
bought digital advice startup RobustWealth in 2018 and closed it in September 2021.
More recently, Capital One sold its Capital One Investing client portfolios to SageView Advisory Group in
April 2022, only two years after acquiring the service. After largely ignoring FutureAdvisor's direct-to-
consumer business since buying it in 2015, BlackRock sold it to Ritholtz Wealth Management in early
2023. UBS said in January 2022 it would acquire Wealthfront to break into the U.S. mass-affluent
market, yet the firms called off the merger just nine months later in September 2022.
It's unclear if Morgan Stanley's 2020 acquisition of E-Trade will follow this trend. Morgan Stanley is
currently directing new clients toward E-Trade Core Portfolios and will eventually phase out Morgan
Stanley Access Investing. As part of the ongoing integration, E-Trade can now use Morgan Stanley's
macro research but lost other features, such as premium accounts with access to financial planners.
The industry is now at a crossroads. Assets in robo-advisors have continued to grow through 2023, but
new startups are rare. Many of the largest players are asset managers that added robo-advisor
capabilities over the past decade, including Vanguard, Fidelity, and Schwab. The nine robo-advisor
offerings for which we have data from year-end 2017 through 2022 grew more than 50% per year, on
average, even though growth either slowed or receded in 2022's market tumult.
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Exhibit
4 Asset-Growth Trends for Selected Robo-Advisors
Source
s: Company surveys, Form ADV filings, and Morningstar research. Data as of Dec. 31, 2022.
1 Estimates based on the underlying assets for the Fidelity Flex funds used in the program.
Fide
lity's growth trajectory since 2017 continued to be the fastest, though that rate is likely to slow as its
estimated $7 billion in assets under management multiplies. The annual growth rates of providers with
tens of billions in assets, including Schwab, Betterment, and Wealthfront, have settled around 20%. So
too has Vanguard's, even though it is nearly 4 times the size of its next-biggest rival, Schwab.
Indu
stry leaders are in a robo-advisor capability arms race. Tax-loss harvesting, for instance, is now
offered by nine of the 20 robo-advisors we surveyed. Vanguard recently made automated tax-loss
harvesting available to all tiers of its offering, joining SigFig, Wells Fargo (via its SigFig partnership),
Betterment, Wealthfront, and U.S. Bancorp. Schwab currently offers the feature only to accounts with
$50,000 or more, while E-Trade plans on introducing the feature later this year. Many providers also
have added or are planning to add ESG versions of their portfolios.
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Robo-Advisor Historical Milestones (2007-23)
certain services, including licensing the Wealth Forecast Engine and consulting on portfolio
One in 2019.
-Trade Core Portfolios licenses certain services from Morningstar, including fund fact sheets and a risk-tolerance questionnaire.
J.P. Morgan Automated Investing's portfolios include some funds that track Morningstar indexes.
Even as providers like Vanguard and Fidelity have augmented their existing capabilities, some robo-
advisors have pulled back. Both Merrill Lynch and Morgan Stanley have lagged in adding additional goal
planning and account aggregation features to their platforms, preferring instead to direct clients toward
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their human advisors. Other banks like J.P. Morgan, Wells Fargo, and U.S. Bancorp built their own
services or partnered with other providers, but these haven’t upended traditional wealth management
components. Automated wealth advice is not going away, but it is increasingly unlikely that robo-
advisors will replace all human advisors. Over the past decade, an increasing number of robo-advisors
have added access to human advisors.
Against this backdrop regulatory scrutiny has increased. SEC chair Gary Gensler has worried in recent
years about the fiduciary duty of online investing platforms, including robo-advisors. Concern centers
around the potential for providers to exploit their services to drive their own revenue. In June 2022,
Schwab got into trouble with the SEC for allocating a higher-than-average percentage of clients’
portfolios to cash parked in Schwab's proprietary deposit accounts. This hefty cash stake reduced
returns while adding to Schwab's revenue, which Schwab failed to disclose. Most recently, the SEC
fined Betterment in April 2023 for misleading clients over the frequency of its tax-loss harvesting
algorithm. SEC scrutiny might also damp the development of artificial intelligence in the space, as
providers navigate fiduciary compliance with Regulation Best Interest.
Pricing
Price gets a 30% weight in our robo-advisor rankings. One of the few investing certainties is that the less
investors pay for asset management and advice, the more they keep. The price assessment is holistic
and accounts for varied pricing models. It begins with advisory fees, calculating the annual cost for an
investor with a hypothetical $15,000 balance.
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Exhibit
6 Annual Advisory Fees for Selected Robo-Advisors
Source
s: Company surveys, Form ADV and 13-F filings, and Morningstar research. Data as of May 31, 2023.
1 Does not reflect potential fluctuations
owing to account appreciation or depreciation.
2 Titan
's fee assumes a blended account with active and passive investments.
3 Morningstar is a minority owner of Ellevest, Inc. Ellevest has separately engaged Morningstar to provide certain services,
including licensing the
Wealth Forecast Engine and consulting o
n portfolio allocations (including specific ETFs included in client portfolios).
4
J.P. Morgan Automated Investing's portfolios include some funds that track Morningstar indexes.
5 Betterment charges $4/month for accounts less than $20,000. However
, that fee converts to 0.25% in a number of ways, including with a
$250/month automated deposit into a Betterment account at any balance.
6 E-Trade Core Portfolios licenses certain services from Morningstar, including fund fact sheets and a risk-tolerance questionnaire.
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Exhibit
7 Additional Fee Details (Excluding Premium Offerings)
Sources: Company surveys, Form ADV, and 13-F filings, and Morningstar research. Data as of May 31, 2023.
1 Morningstar is a minority owner of Ellevest, Inc. Ellevest has separately engaged Morningstar to provide certain services,
including licensing the
Wealth Forecast Engine and consulting
on portfolio allocations (including specific ETFs included in client portfolios).
2 E
-Trade Core Portfolios licenses certain services from Morningstar, including fund fact sheets and a risk-tolerance questionnaire.
3
J.P. Morgan Automated Investing's portfolios include some funds that track Morningstar indexes.
Adv
isory fees have ticked down since the 2022 study. This year they ranged as high as 0.89%, rather
than last year's upper bound of 1.00%, and the 0.25% median was 5 basis points lower. Most offers still
charge clients a fixed percentage of assets under management, with some billing less as accounts
exceed certain thresholds. Others, like Acorns and Betterment, charge fixed monthly fees. Betterment's
$4 monthly fee for accounts with less than $20,000 translates into a 0.32% levy on a $15,000 balance,
but the price tag drops to 0.25% under certain conditions, such as if investors commit to making $250
monthly automated deposits.
We a
lso consider other ways providers might make money off client assets, such as steering clients into
low-yielding cash accounts, as well as the expense ratios of funds that robo-advisors recommend to
clients. Some providers don't charge fees on top of those of the underlying funds. Schwab Intelligent
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Portfolios, for example, invests most client assets in Charles Schwab Investment Management funds but
levies no overall fee. Other providers, such as Fidelity Go and SoFi Wealth, make some or all the
underlying funds free. In most cases, though, the underlying funds' fees are an additional expense.
Oth
er costs are less apparent. For example, asset-allocation and fund selection choices may result in
opportunity costs. Allocations to cash or money market funds could weigh on long-term returns. As
mentioned above, Schwab Intelligent Portfolios, allocates a portion of client assets to a proprietary
deposit account. SoFi uses novel, proprietary funds that have underperformed more established outside
offerings in client portfolios. For example, from their April 2019 debut through May 2023, SoFi Select 500
ETF SFY and SoFi Next 500 ETF SFYX have lagged Vanguard Growth ETF VUG and Vanguard Mid-Cap ETF
VO, which are low-cost, cap-weighted alternatives in the same Morningstar Categories, by 2.6 and 2.8
annualized percentage points, respectively. Such funds are often better for the robo-advisors than for
their clients.
Robo
-advisors also can make money from their clients' trading. Many receive payment for order flow,
which entails executing ETF trades via unaffiliated brokers who will pay the robo-advisor for the traffic.
The amounts are typically just a sliver of a penny per share, but they can add up and create incentives
for robo-advisors to encourage trading.
The
Price assessment is not entirely quantitative. We consider qualitative criteria, too, and transparency
is chief among them. Investors should be able to easily understand how much they are paying, exactly
what they are paying for, and whether their providers are making money off their assets in ways not
reflected in their headline fees. SoFi and Schwab Intelligent Portfolios charge no advisory fees but the
former pressures clients to buy other products and services, while the latter often funnels assets into
revenue-generating in-house cash accounts. Meanwhile, Vanguard's simple fee calculator and plain-
English explanations of how it charges investors, what it charges them for, and what potential conflicts
of interest it faces in serving them is a model of fee transparency.
Fai
rness is another, more subjective input. The economics of the platform should scale to investors'
benefit. The more they invest, the less they should pay as a percentage of assets and the more they
should get in terms of level of service. As it stands today, this sort of investor-friendly practice is not
standard—likely because the offerings themselves have yet to achieve sufficient scale to share benefits
with their clients.
Risk-T
olerance Questionnaires
The process for most new robo-advisor clients starts with a risk-tolerance questionnaire, which attempts
to discern how much risk potential clients can endure to achieve their investment goals. Questions
typically focus on an investor's level of investment experience, how they feel about risk in general, or
how much they would be willing to lose for the chance of a given investment gain. The risk-tolerance
questionnaire also attempts to quantify abandonment risk—or the likelihood of a client selling in a
market drawdown.
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This risk-tolerance questionnaire acts as a check on typical retirement need calculations, which estimate
how much money a client will require at retirement to support ongoing withdrawals. As a rule of thumb,
robo-advisors typically steer younger clients who do not need their money for several years toward
portfolios with more stocks and other volatile assets and older investors (or those who need their money
sooner) toward portfolios heavier in bonds and other less volatile asset classes.
But there's no consensus on how risk-tolerance questionnaires should be designed or whether they
actually work. Thus, a handful of services skip the risk-tolerance questionnaire and recommend
portfolios based largely on the client's investing horizon and ultimate investment needs. Betterment, for
example, determines a client's asset mix based on the goal type, target dollar amount, and time horizon.
An algorithm then translates these inputs into 101 different risk levels, with stock allocations ranging
from zero to 100% of assets. Similarly, Ellevest doesn't ask people about their risk tolerance because it's
a situation-dependent, subjective measure. Instead, Ellevest (like Betterment) assigns clients to
portfolios based on their investment goal, time horizon, and risk capacity, or ability to take on risk given
their financial situations.
Robo-advisors' questionnaires tend to vary in depth and breadth. Like SoFi, U.S. Bancorp, and Marcus
Invest, Merrill Edge Guided Investing asks only a handful of questions about clients' comfort with market
turmoil and their desire to sell assets that have suffered losses. Other services' inquiries go deeper.
Schwab Intelligent Portfolios asks more than a dozen questions, many of which can branch depending
on the responses. Although Fidelity Go defaults to allowing clients to pick their own risk tolerance, it
offers a series of 10 additional questions that may recommend a different risk-tolerance level.
Vanguard's research-based risk-assessment approach stands out. With the help of third-party provider
Capital Preferences, it presents investors with six scenarios of varying upside potential to gauge their
risk aversion, loss aversion, and decision consistency. Vanguard assigns investors decision consistency
scores between 1 and 100 and risk scores between 1 and 100 based on how they respond and uses the
marks with other inputs, like age and goals, to create personalized glide paths.
Robo-advisors also differ in how much they allow investors to override or alter the results of their risk-
tolerance assessments. Merrill, for example, lets clients bypass the risk-tolerance questionnaire and pick
a target-risk portfolio. Wells Fargo gives clients the option of moving up or down one notch on the risk
spectrum. Vanguard allows investors to move up or down up to two levels of its five risk tiers of very
conservative, conservative, moderate, aggressive, and very aggressive.
Portfolio Construction
Robo-advisors often follow similar portfolio construction strategies. Some prominent exceptions aside,
most focus on building balanced portfolios that offer broad, low-cost exposure to major asset classes.
Portfolios typically span risk levels and range from equity-oriented portfolios for younger or more
aggressive investors to bond-heavy portfolios for older or more conservative investors.
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Despite similarities, robo-advisors are not monolithic. Nuances in the way each program approaches
fund selection, asset-class exposure, and portfolio maintenance can lead to different results.
Our
analysis does not prescribe the best way to construct portfolios. Instead, we look for clearly
articulated investment theses that draw on rigorous research and steer clear of problematic strategies,
such as market-timing.
Simp
le vs. Complex
Some providers stick with a handful of funds representing broad asset classes. For example, Fidelity Go
holds just six ETFs (plus a tiny cash stake) covering three main asset classes: U.S. stocks, non-U.S.
stocks, and bonds. Meanwhile, Schwab Intelligent Portfolios draws on more than 50 different funds
from as many as 20 categories in a wide range of asset classes, including gold, commodities, real estate,
emerging-markets debt, and fundamental index funds that lean toward value stocks.
Exhibit
8 Simple vs. Complex: Number of Holdings per Portfolio and Risk Levels for Selected Robo-
Advisors
Source
s: Company surveys, Form ADV filings, and Morningstar research. Data as of Dec. 31, 2022.
1 Vanguard clients who opt for active, municipal
-bond, or ESG exposure (and who enter the program without existing taxable positions) could have
up to eight additional holdings beyond Vanguard's four core passive funds.
The
re is no consensus on how many asset classes a diversified portfolio needs. However, most robo-
advisors target younger investors with smaller account balances. Investors fitting that profile can often
benefit from simplicity and shouldn’t feel compelled to get exposure to every single asset class.
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9 Asset Classes Used as Underlying Holdings
-yield bonds, and REITs only within its Flexible portfolios.
-Trade Core Portfolios licenses certain services from Morningstar, including fund fact sheets and a risk-tolerance questionnaire.
including licensing the Wealth Forecast Engine and consulting on portfolio
J.P. Morgan Automated Investing's portfolios include some funds that track Morningstar indexes.
they choose to customize. Citi Wealth Builder, Empower, and E-Trade do not disclose sufficient portfolio data to determine their asset
Static vs. Dynamic
The typical robo-advisor defaults an investor into a portfolio that provides a static stock/bond split to
match the investor's risk tolerance. Portfolio allocations correspond to risk levels, typically falling in
increments of 10 percentage points, with portfolio weightings of 90% stocks and 10% bonds, 80% stocks
and 20% bonds, or 60% stocks and 40% bonds, for example. Managers of those portfolios—if there are
even any named—run them as stand-alone funds and hew tightly to the prescribed stock/bond splits.
The onus falls on investors to manage their portfolios' risk over time, either by opting into more-
conservative options or by retaking the investment risk questionnaire. To their credit, some robo-advisors
such as Betterment and Fidelity Go automatically prompt investors to retake the risk-tolerance
questionnaire at least once per year.
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A few providers—notably Betterment and Vanguard Digital Advisor—also offer glide paths to move
their clients from more aggressive to more conservative allocations as they age or approach investment
goals, similar to target-date funds. Vanguard maps each client to more than 300 possible glide paths
tailored to personal circumstances, considering multiple variables—risk attitude, loss aversion, current
age, retirement age, and marital status. Similarly, Betterment starts with recommended portfolio
allocations for different types of goals and risk tolerance levels. As a given goal's time horizon shortens,
it gradually reduces the portfolio's risk level. In most other programs, though, investors may see their
asset allocations shift suddenly (and create potential tax implications) if they change their risk-tolerance
level.
Active, Passive, and Customized Offerings
Although low-cost index-tracking ETFs reign supreme across most robo-advisor-built portfolios, a few
provide exposure to actively managed open-end funds, individual stocks, or even closed-end funds. In
the past year, Titan, which had relied on all active strategies, got more passive, while Vanguard, a
bastion of passive investing, got more active. Titan added two diversified portfolios of low-cost ETFs to
its lineup of internally managed equity strategies, third-party closed-end funds, and a cryptocurrency
offering. Vanguard introduced an active management risk assessment and added a five-fund active
equity portfolio and an active bond option to its array of index funds.
Som
e providers let clients customize their portfolios. Wealthfront customers can change the
recommended asset mix and/or add individual ETFs to their accounts. Investors with at least $100,000 in
taxable money can opt for direct indexing or a risk parity strategy, while those with a balance of at least
$500,000 can opt for a smart-beta strategy. Similarly, Betterment investors can use the recommended
portfolio as a starting point but then adjust the individual asset-class weights or underlying holdings.
Before implementing the changes, Betterment gives customers feedback on the potential impact of their
changes on portfolio diversification and risk.
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10 Overall Investment Approach and Options Available
2019.
de certain services, including licensing the Wealth Forecast Engine. UBS
mine its investment approach. E-Trade and Wells Fargo do not disclose information about their underlying fund holdings.
Morgan Automated Investing's portfolios include some funds that track Morningstar indexes.
Wealthfront clients have access to a broader range of asset classes if they choose to customize.
-Trade, Wells Fargo, and Empower do not disclose information about their underlying fund
While customization may have a niche following, some robo-advisors stray into fad territory. Betterment
offers smart-beta portfolios plus four crypto portfolios—including one focused on the metaverse.
Wealthfront, meanwhile, promotes small stock baskets to its clients within its app's well-designed user
interface. For example, it might encourage investors to consider a handful of electric vehicle makers'
stocks. Most investors, though, would be better served by portfolios of low-cost, diversified ETFs.
Value vs. Growth
Providers also differ in the extent to which they favor value- or growth-oriented strategies. SoFi, in
particular, has a pronounced growth bias. Its model portfolios include growth ETFs for large- and mid-
cap exposure; these two funds together account for nearly two thirds of equity exposure in the model
portfolios. Several other providers, including Schwab and Betterment, lean more toward value. Within
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each major asset class, Schwab includes both a basic market-cap-weighted index ETF and a
fundamentally weighted ETF, which tends to have a value tilt because its allocations are based on
measures such as revenue, cash flow, and dividends. Wealthfront previously included value factor
attributes as part of its smart-beta strategy but recently dropped it in favor of focusing on companies
with strong operating profitability.
ES
G Options
As the U.S. ESG market has grown, robo-advisor ESG offerings have become almost standard.
Responding to investor demand, especially the younger investors who make up their main target
audience, just over half of providers surveyed offer an ESG option. Some, such as Vanguard Digital
Advisor and Wells Fargo Intuitive Investor, added sustainable investing in 2022. IShares ETFs are the
dominant building block of most ESG-themed portfolios in our robo-advisor survey. One fund in
particular, iShares ESG Aware MSCI USA ETF ESGU, makes up a significant portion of ESG equity
exposure in our survey. On the other hand, Schwab Intelligent Portfolios and Fidelity Go do not offer ESG
portfolios and have no plans to. Individual results may vary, but ESG funds and sustainability-themed
portfolios tend to be more expensive than non-ESG funds and portfolios with similar investment
mandates.
U.
S. vs. Non-U.S.
At year-end 2022, non-U.S. domiciled stocks made up about 40% of global market capitalization.
However, most robo-advisors display home-country bias, which is not uncommon among U.S. investors.
Acorns and Merrill target weights of 70% U.S. equity and 30% non-U.S., which is a split that larger asset
managers often use in their target-date funds. This weighting acknowledges the diversification benefits
of non-U.S. stocks but also recognizes that many investors prefer to hold more U.S. equities. The Schwab
Intelligent Portfolios program also offers U.S.-focused options that investors can opt into, though these
portfolios still allocate between 5% and 15% of total assets to non-U.S. stocks.
S
igFig and Ally Invest hew more closely to the global market cap, with each provider maintaining a
60/40 U.S./non-U.S. split. Vanguard Digital Advisor offers an even 50/50 split, which in effect
overweights non-U.S. stocks.
Th
e take-home point for investors is that nearly all robo-advisors offer some degree of international
diversification, but the amount varies significantly by provider.
M
unicipal Bonds
Tax management is another key difference among providers. Some but not all robo-advisors offer tax-
loss harvesting, but providers also differ in the degree to which tax considerations impact portfolio
construction. Acorns does not include municipal-bond options in its portfolios, making its service a better
fit for investors in lower tax brackets and/or those saving in tax-deferred retirement accounts. Most
other providers offer different portfolios of the same risk level tailored to taxable or tax-free accounts.
SigFig, for example, includes dividend-oriented REITs only in tax-advantaged accounts while reserving
municipal bonds for taxable portfolios. Similarly, most other providers lean heavily on municipal-bond
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Page 38 of 51
funds in portfolios geared toward investors in taxable accounts. In almost every case, investors opting
for these accounts will get municipal-bond allocations regardless of their tax brackets, which may not be
ideal for every situation.
C
ash Is Trash?
Whether conservative, moderate, or aggressive, robo-advisor portfolios typically allocate up to 3% of
assets to cash. Paltry nominal and negative real returns from cash in recent years have pushed some
robo-advisors toward bond substitutes, even in conservative portfolios. SigFig allocates up to 15% of
assets to short-term Treasuries, SoFi holds up to 30% in a short-term bond fund (plus an additional 5% to
a short-term TIPS fund), and Acorns makes liberal use of ultrashort bond funds in its conservative
portfolio, though its moderate and aggressive portfolios do not include cash. However, this stance may
be tested as yields soared in 2022, causing some providers to miss out on an opportunity to take
advantage of higher cash yields.
A
long with Schwab Intelligent Portfolios, Ally Invest is one of the few robo-advisors with large cash
allocations. It offers both Market Focused portfolios, which allocate 2% to cash and have a 0.30% annual
advisory fee, and Cash Enhanced portfolios, which allocate 30% to cash but have no advisory fee. The
cash-heavy portfolios target Ally's risk-averse customers who already have most of their assets at the
bank. Wealthfront and Betterment also now offer high-yield savings accounts with higher FDIC
insurance coverage via partner banks. The cash portion provides ballast while earning a hefty annual
rate of 4%, recently competitive with other high-yield savings accounts.
Sc
hwab Intelligent Portfolios' hefty cash allocations are more problematic. The portfolios' 13% cash
stake, on average, is out of step with other managed investment portfolios. The typical fund in the
moderate allocation (formerly allocation—50% to 70% equity) Morningstar Category holds around 7% of
its assets in cash, while most target-date funds hold about 3% in cash across their vintages. On the
positive side, Schwab now links the cash yield to Schwab Government Money Fund, which offered a
relatively competitive seven-day yield of 4.67% as of mid-June 2023.
G
ranted, higher-than-average cash allocations can pay off at times. Schwab's portfolios likely hold up
better than those of most other robo-advisors during market declines, such as 2022's bear market. More
often, though, cash drags on investors' long-term results.
FO
MO on Cryptocurrencies
Following the huge runup in bitcoin and other cryptocurrencies in 2019, 2020, and part of 2021, many
robo-advisors took a close look at whether they should include them as an option for clients' portfolios.
Not coincidentally, cryptocurrency has been a huge area of interest for the younger investors who make
up the core audience for most robo-advisors.
A
year ago, Wealthfront was the only major provider to include a cryptocurrency option, though the
much smaller Titan has offered it since 2021, and others have considered adding it. Wealthfront started
offering crypto exposure in July 2021 and now gives customers the option of investing up to 10% of their
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Page 39 of 51
assets in bitcoin and/or ethereum, two of the largest and most established cryptocurrencies. Titan Invest
offers an actively managed cryptocurrency portfolio that seeks to outperform the Bitwise 10 Large Cap
Crypto Index over a three- to five-year time horizon.
R
ecently, Acorns and Betterment have also decided to enter the cryptocurrency game. Acorns allowed
clients to invest up to 5% of assets in a bitcoin ETF, and Betterment acquired Seattle-based
cryptocurrency manager Makara in 2022. Betterment now offers four crypto portfolios: a broad market
portfolio as well as portfolios focused on sustainable crypto, decentralized finance, and the metaverse.
Betterment doesn’t cap how much investors can put in its crypto portfolios, which are 4 times as
expensive as its investment portfolios but suggests a limit of 5% of assets.
Cr
yptocurrency remains among the most volatile and speculative asset classes in Morningstar's
database and has been subject to both dizzying highs and sudden drawdowns. Bitcoin, for example,
dropped 77% between its November 2021 high and November 2022 low. Robo-advisor investors should
think carefully about whether they can tolerate this asset's risk before adding it to their portfolios.
F
inancial Planning Services
At the most basic level, individuals who sign up for a robo-advisor typically get digital investment
management consisting of a diversified portfolio made up of low-cost, passively managed mutual funds
or ETFs. Nearly every robo-advisor offers a range of portfolios with different risk levels.
A
utomatic rebalancing is an essential feature—without it, investors would have to manually adjust their
portfolio holdings to keep their asset allocations in line with the original targets. Most robo-advisors use
a threshold for rebalancing, meaning they buy and sell a portion of underlying holdings to bring the
portfolio back in balance if a major asset class drifts higher or lower than its original target by a certain
amount, such as 5 percentage points.
T
ax-loss harvesting, which involves selling securities to realize capital losses that can be used to offset
realized gains, is another useful feature. To implement this strategy, robo-advisors typically need to
designate more than one underlying holding that can be used for each asset class. If the program sells a
holding to take advantage of tax losses, it can then replace it with a similar fund in the same asset class.
To avoid running afoul of wash-sale rules, the replacement fund can't be substantially identical to the
sold holding.
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1 Estimated Value of Financial Planning Services (Annual %)
The need for a lineup of similar but not substantially identical funds in the same asset class highlights
the drawbacks of relying only on proprietary funds. Fidelity Go is one of the largest players that does not
currently offer tax-loss harvesting, a significant drawback to an otherwise competitive program. Not
coincidentally, this program relies on a limited lineup of seven in-house Fidelity Flex funds that serve as
the building blocks for portfolios of various risk levels. Lower-rated Marcus Invest, Merrill Guided
Investing, and Citi Wealth Builder also do not include this feature.
Vanguard Digital Advisor rolled out tax-loss harvesting in November 2022. It also increased the number
of funds it uses to build customized portfolios and associated glide paths, switching from only four to up
to 13, which can include a five-fund active equity allocation, an active bond option, three ESG funds, and
a muni-bond fund.
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One key need that most robo-advisors do not currently fill is helping investors figure out how to draw
down assets during retirement. Their target audience tends to be younger investors, but as more
individuals reach retirement age, this will become increasingly important.
12 Financial Planning Services Offered
s: Company surveys, Form ADV Part II filings, and Morningstar research. Data as of May 31, 2023.
-Trade Core Portfolios licenses certain services from Morningstar, including fund fact sheets and a risk-tolerance questionnaire.
including licensing the Wealth Forecast Engine and consulting on portfolio
included in client portfolios).
s.
J.P. Morgan Automated Investing's portfolios include some funds that track Morningstar indexes.
High-level guidance is available with Schwab Intelligent Portfolios Premium.
-loss harvesting is available for accounts with balances of at least $50,000.
Available with Schwab Intelligent Portfolios Premium
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Schwab Intelligent Portfolios is currently one of the only major robo-advisors that offers comprehensive
advice on retirement income. Its program helps investors determine how much they can afford to
withdraw from their portfolios and schedule recurring withdrawals from both taxable and tax-deferred
accounts, such as IRAs. The program also incorporates required minimum distributions, which currently
apply to investors age 73 and older, who must withdraw a certain amount each year from accounts such
as IRAs and 401(k)s based on standard life-expectancy formulas. Schwab's program also considers the
order of withdrawals from various types of accounts to minimize taxes.
Similarly, Vanguard Personal Advisor Services has added a dynamic spending capability that helps guide
clients toward prudent spending from their portfolios in retirement. Vanguard plans to add that feature
to Vanguard Digital Advisor, or VDA. In the meantime, VDA guides clients to ensure they are taking the
necessary steps to meet their financial goals and aims to replicate an advisor nudging clients with bite-
size pieces of actionable advice. VDA also offers calculators including a rainy day tool and emergency
savings estimator, healthcare estimator, Medicare match, and Social Security optimization
differentiating the service from competing robo-advisors.
Exhibit 1
3 Annual Advisory Fees for Selected Premium Offerings
Source
s: Company surveys, Form ADV Part II filings, and Morningstar research. Data as of May 31, 2023.
1 Morningstar is a minority owner of Ellevest, Inc. Ellevest has separately engaged Morningstar to provide certain services,
including licensing the
Wealth Forecast Engine and consulting on portfolio allocations (including specific ETFs included in client
portfolios).
2 J.P. Morgan Automated Investing's portfolios include some funds that track Morningstar indexes.
Account aggregation, which involves setting up digital links to assets held outside the robo-advisor, is
another feature that most investors would probably find useful. Customers can typically set up this
feature by providing information for the outside account, allowing the program to pull in updated
account values and asset-allocation levels for all their assets, not just those managed by the robo-
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advisor. Having access to this information can help robo-advisor programs provide more accurate advice
on savings, asset allocations, and progress toward investment goals.
Exhibit 1
4 Key Features and Benefits
Source
s: Company surveys, Form ADV Part II filings, and Morningstar research. Data as of May 31, 2023.
1 E
-Trade Core Portfolios licenses certain services from Morningstar, including fund fact sheets and a risk-tolerance questionnaire.
2 Morningstar is a minority owner of Ellevest,
Inc. Ellevest has separately engaged Morningstar to provide certain services, including licensing the
Wealth Forecast Engine and consulting on portfolio allocations (including specific ETFs included in client portfolios).
3 Multiple goal planning
is only available for Executive members.
4
J.P. Morgan Automated Investing's portfolios include some funds that track Morningstar indexes.
5 Account aggregation and multiple goal planning
are only available for Premium members.
6 Tax-loss harvesting is only available for accounts of $50,000 and above.
Finally, some robo-advisors offer a variety of other bells and whistles, such as cash management, career
coaching, and spending rebates. While price and portfolio construction are some of the most important
considerations, the breadth of services offered also distinguishes the best players.
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Exhibit 1
5 Other Features and Benefits
Source
s: Company surveys, Form ADV Part II filings, and Morningstar research. Data as of May 31, 2023.
1 Offers access to
the job finder tool from ZipRecruiter.
2 Offers UTMA and UGMA accounts.
3 E
-Trade Core Portfolios licenses certain services from Morningstar, including fund fact sheets and a risk-tolerance questionnaire.
4 Morningstar holds a minority ownership position in Ellevest, Inc. Ellevest has separately engaged Morningstar to provide certain services, including
licensing the Wealth Forecast Engine an
d consulting on portfolio allocations (including specific ETFs included in client portfolios).
5 J.P
. Morgan Automated Investing's portfolios include some funds that track Morningstar indexes.
6 Rebate program available for clients enrolled in Preferred Rewards.
7 Features
are available through Schwab’s broader brokerage and banking services.
8 Portfolio review is only available for Premium members.
Rob
o-Advisors vs. Traditional Advisors
Digital investment advice—as opposed to traditional financial advice provided by a human being—can
be a compelling option for many investors, particularly those with smaller account balances. There are
some key differences in the types of services each provides, though.
The most obvious difference is whether an actual person mediates the investment advice—albeit with
varying degrees of reliance on algorithms—or if the algorithm exclusively provides it. In the traditional
model, financial advisors provide customized investment management and financial planning services.
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 provide
reassurance during periods of market turbulence.
I
n the early days of digital investment advice, many heralded it as a replacement for traditional, human-
delivered financial advice. A key assumption was that younger generations who grew up with social
media and the internet at their fingertips might even prefer not to meet with anyone in person.
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But research has shown that few investors prefer to handle their financial decisions exclusively online.
Research from Phoenix Marketing and Cerulli Associates
4
indicates that only 5% of survey respondents
expressed a preference for working with an online-only advisor. Similarly, a Vanguard survey
3
found that
more than 90% of clients currently working with a human advisor said they would not consider
switching to a digital advisor, but 88% of clients currently working with a robo-advisor would consider
shifting to a human advisor.
Many robo-advisors have tried to bridge the gap between digital and human investment advice by
incorporating real-time behavioral nudges via text or email to encourage their users to stick with their
investment plans and continue taking the steps needed to meet their goals. As we discussed in the
Industry History and Trends section, several robo-advisors have also introduced hybrid offerings that
combine digital tools with access to a human advisor.
Another obvious difference between robo-advisors and traditional advisors is the degree of
customization and hands-on investment management. 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. 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.
However, many investors at the lower end of the mass affluent tier (which Cerulli Associates defines as
those with investable assets from $500,000 to $2 million) may not need this scope of advice. For those
who do not need complex financial planning, cost is a key differentiator, and robo-advisors have a
significant cost advantage. An investor with a $500,000 portfolio, for example, might pay about 1.00% of
assets per year to a traditional financial advisor, which translates into $5,000 per year. An investor with
the same $500,000 portfolio who paid a typical level of fees for a robo-advisor (about 0.30% of assets), in
contrast, would pay only $1,500 per year. Moreover, many financial advisors will not accept new clients
unless they have a higher level of investable assets.
Another way to frame the price of digital advice versus more traditional advice is to compare it with the
average cost for a stand-alone financial plan, which is a comprehensive analysis of a client’s goals,
income, assets, debts, planned expenses, retirement savings, and anticipated retirement spending.
Advisors often use sophisticated financial planning software to enter detailed information and
assumptions, which are then translated into a year-by-year projection of the client's financial
information. This type of software also typically incorporates Monte Carlo analysis, a statistical model
that simulates thousands of different potential outcomes to estimate the probability of success or failure
for a given plan. Based on research from Cerulli Associates,
4
advisors typically charge $2,325 for a
4 The Cerulli Report—U.S. Retail Investor Products and Platforms 2022: Creating an Omnichannel Experience
3 https://corporate.vanguard.com/content/corporatesite/us/en/corp/articles/quantifying-value-human-and-digital-advice.html
4 The Cerulli Report—U.S. Advisor Metrics 2022: Trends in Advisor Compensation, P. 138
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Page 46 of 51
comprehensive financial plan along these lines, or $1,750 for a more targeted financial plan focusing on
a specific area, such as retirement income, tax planning, or education funding.
Several robo-advisors (including Betterment, Schwab, Wealthfront, and Vanguard) allow customers to
create similar projections but at a much lower cost. Investors might still be willing to pay up for a human
financial advisor but should keep an eye on whether the value of the services they are receiving is worth
the cost.
Conclusion
The robo-advisor industry may be more than a quarter century in the making, with many leading
providers today getting their start around 15 years ago, but the industry is just now maturing. Services
continue adding new, valuable features each year, if not each quarter, and competing on cost. Room for
improvement remains, though. A few robo-advisors remain pricey, transparency could be better, and
some portfolio options are better than others. The ongoing trend toward adding a human touch to robo-
advisor offerings suggests the future will be far from exclusively digital. How robo-advisors incorporate
nascent artificial intelligent technology is not yet clear. Nonetheless, sound investing, withdrawals, and
holistic financial planning will remain as much art as science. In that sense, there will always be a role
for traditional advisors, especially with clients whose needs are complicated. New investors, however,
whose modest assets precluded them from receiving financial advice in the past, now have excellent
options for getting started through robo-advisors.
K
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Appendix: Sample Robo-Advisor Portfolios
A1 Sample Portfolio Holdings: Betterment
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A2 Sample Portfolio Holdings: Fidelity Go
May 31, 2023. Portfolio holdings are for Fidelity's Growth Strategy Portfolios.
A3 Sample Portfolio Holdings: Schwab Intelligent Portfolios
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A4
s: Vanguard and Morningstar Direct. Data as of May 31, 2023. Portfolios shown are for a 70/30 mix of stocks and bonds.
A5 Sample Portfolio Holdings: Wealthfront
s: Wealthfront and Morningstar Direct. Data as of May 31, 2023. Portfolios shown are for Risk Level 6.
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Page 50 of 51
Disclosures
One of the authors of this report participates in the Merrill Guided Investing program.
O
ne of the authors of this report has an ownership position in the following fund mentioned: iShares
ESG Aware MSCI USA ETF ESGU.
Morningstar, Inc. licenses indexes to financial institutions as the tracking indexes for investable
products, such as exchange-traded funds, sponsored by the financial institution. The license fee for such
use is paid by the sponsoring financial institution based mainly on the total assets of the investable
product. Please click here for a list of investable products that track or have tracked a Morningstar index.
Morningstar, Inc. does not market, sell, or make any representations regarding the advisability of
investing in any investable product that tracks a Morningstar index.
M
orningstar may have other commercial relationships with companies mentioned in this report. Please
visit http://global.morningstar.com/equitydisclosures for more information.
C
orrections and Clarifications
A sentence in the second paragraph of the Results section on Page 6 has been revised to remove a
reference to an SEC fine and censure for Betterment in April 2023, which was not one of the reasons
that it moved from second place overall to a fourth-place tie with Wealthfront.
Ex
hibit A4 has been revised to correct the portfolio weightings shown in the table.
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Page 51 of 51
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For more information about Vanguard funds or Vanguard ETFs, visit
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All investments are subject to risk, including the possible loss of the money
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of funds will meet your investment objectives or provide you with a given
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Actual costs vary. Digital Advisor will reduce your gross advisory fee by
the amount of revenue (such as expense ratio rebates) that Vanguard (or a
Vanguard affiliate) collects on your portfolio in order to calculate the net
advisory fee. Digital Advisor’s annual net advisory fee is approximately
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although your actual net fee will vary depending on the specific holdings in
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Actual costs vary. Personal Advisor will reduce your gross advisory fee by
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although your actual net fee will vary depending on the specific holdings in
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investments. Participants will be notified of the gross advisory fees
applicable to their accounts via plan fee disclosure notices.
Reprinted by permission of Morningstar, August 2023
2023 Robo-Advisor Landscape | 22 July 2023 | See Important Disclosures at the end of this report.
Va
nguard Digital Advisor’s services are provided by Vanguard Advisers,
Inc. (VAI), a federally registered investment advisor. Go to vanguard.com/
digitalbrochure for important details about this service. Vanguard Digital
Advisor’s financial planning tools provide projections and goal
achievement forecasts that are hypothetical in nature. They are provided
for educational purposes only and are not guarantees of future results.
Vanguard Personal Advisor is provided by Vanguard Advisers, Inc., a
registered investment advisor, or by Vanguard National Trust Company, a
federally chartered, limited purpose trust company. Go to vanguard.com/
digitalbrochure for important details about this service. Vanguard Personal
Advisor’s financial planning tools provide projections and goal
achievement forecasts that are hypothetical in nature. They are provided
for educational purposes only and are not guarantees of future results.
VAI is a subsidiary of VGI and an affiliate of VMC. Neither VAI, VNTC,
Vanguard Personal Advisor, nor Vanguard Digital Advisor can guarantee a
profit or prevent a loss.
Vanguard is owned by its funds, which are owned by Vanguard’s fund
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ESG funds are subject to ESG investment risk, which is the chance that the
stocks or bonds screened by the index provider for ESG criteria generally
will underperform the market as a whole or, in the aggregate, will trail
returns of other funds screened for ESG criteria. The index provider’s
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a particular industry or the index provider’s own ESG criteria, may differ
from that of other funds or of the advisor’s or an investor’s assessment of
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provider may not reflect the beliefs and values of any particular investor
and may not exhibit positive or favorable ESG characteristics. The
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Successful application of the screens will depend on the index provider’s
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There may also be unintended tax implications. We recommend that you
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© 2023 The Vanguard Group, Inc. All rights reserved. Vanguard Marketing
Corporation, Distributor of the Vanguard Funds.
Reprinted by permission of Morningstar, August 2023
2023 Robo-Advisor Landscape | 22 July 2023 | See Important Disclosures