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The actual cost of robo-advisors fees – What are the annual fees?

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Thanks to the rise of robo-advisors, investing for the future is now more accessible than ever. You don’t have to spend a lot of time or money hiring a financial advisor to create a complicated asset allocation to receive the best returns possible. Robo-advisors now have the technology and computer software to do this for you — all at a lower annual fee. Let's make a quick comparison between robo-advisor fees.

Which robo-advisor service offers the best bang for your buck?

Cost comparison

Here’s a side-by-side comparison case study that showcases the real annual costs of the most popular robo-advisor services. For this article, I chose these five leading robo-advisors:

Click on the respective link to read our review.

I chose these firms because of their popularity, the amount of assets under management (AUM), and their automated, hands-off approach to asset allocation and investing.

We don't know the future returns of the asset allocation models each robo-advisor provides, but we do know how much each service will cost per year.

The goal of this article is to report on one thing: the measurable annual costs of each investment provider.

Robo-advisor fees criteria

For this comparison study, I’m using a 60/40 stock/bonds mix, since for the most part, it’s considered the “gold standard” in asset allocation.

At least it’s a good starting point for doing an apples-to-apples comparison among the various robo-advisors.

While things like tax efficiency are important, this adds too many variables for this comparison. Also, many individuals are opening tax-deferred accounts with these firms, so services like tax-loss harvesting will not matter with these types of accounts.

For the analysis I created sample investment amounts at $5,000, $35,000, $125,000 and $500,000. I did this to represent various pricing points of the robo-advisors, but also to show fees and annual costs at different deposit amounts.

Why these benchmark amounts? These are the most common real-life price points that have popped up during my research and marked the point at which robo-advisors changed their annual fees.

This article does not look at which service has a better asset allocation (there are too many variables for this comparison to answer that question) but to reveal the real costs of using each service. Not only does my research reveal the robo-advisor fees, but fee efficiency in the selection of the ETFs used to generate the asset allocation.

In the tables below, the Total Annual Fee figure includes the robo-advisor fees and ETF fees combined.

$5,000 deposit

Robo-Advisor Expense Ratio
0.25%
0.38%
N/A
0.00%
Average ETF Expense Ratio
0.15%
Included
N/A
0.14%
Robo-Advisor Annual Fee
$12.50
$19.20
N/A
$0.00
Total Annual Fee
$19.97
$19.20
N/A
$7.19

$35,000 deposit

Robo-Advisor Expense Ratio
0.25%
0.38%
N/A
0.25%
Average ETF Expense Ratio
0.15%
Included
N/A
0.14%
Robo-Advisor Annual Fee
$87.59
$133.32
N/A
$50.00
Total Annual Fee
$140.51
$133.32
N/A
$100.30

$125,000 deposit

Robo-Advisor Expense Ratio
0.25%
0.38%
0.30%
0.25%
Average ETF Expense Ratio
0.15%
Included
0.09%
0.14%
Robo-Advisor Annual Fee
$312.81
$475.80
$375.00
$275.00
Total Annual Fee
$501.81
$475.80
$492.50
$454.63

$500,000 deposit

Robo -Advisor Expense Ratio
0.25%
0.38%
0.30%
0.25%
Average ETF Expense Ratio
0.15%
Included
0.09%
0.13%
Robo-Advisor Annual Fee
$1,251.35
$1,903.32
$1,500.00
$1,212.50
Total Annual Fee
$2,007.25
$1,903.32
$1,970.00
$1,886.00

Summary

Based upon not charging any fees for their service, it looks like Wealthfront is the cheapest robo-advisors today.

Surprisingly, despite their low ETF fees, Vanguard didn't come out the winner at any deposit amount. In fact, they turned out to be one of the most expensive of the six. While Vanguard does allow you to speak to an advisor, I'm not sure what value they add since they won't give advice on funds outside of their service. Is Vanguard's service worth five basis points more than the competition? That remains to be seen. Vanguard is also somewhat limited for the beginning investor since they require a minimum of $50,000 to invest.

With any of the robo-advisors, understand the real annual fee you pay. Which provider has the better allocation for higher future returns? Who knows — that's a crapshoot.

While you cannot control what the market will do, you can control taxes and fees. Make sure you are getting the best service available, at the lowest possible fee. That's not to say you should automatically go with the lowest cost robo-advisor, but the one that best meets your investing objectives.

Moneywise receives cash compensation from Wealthfront Advisers LLC (“Wealthfront Advisers”) for each new client that applies for a Wealthfront Automated Investing Account through our links. This creates an incentive that results in a material conflict of interest. Moneywise is not a Wealthfront Advisers client, and this is a paid endorsement. More information is available via our links to Wealthfront Advisers.

Larry Ludwig Freelance Contributor

Larry Ludwig is a freelance contributor for Moneywise.

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