Automated investing services, known as robo-advisors, offer low-cost portfolios designed for each investor's risk tolerance — but the bespoke nature of the investments make them difficult to benchmark.
Robo-advisors are growing rapidly. Financial services research firm Cerulli Associates estimates that assets under management of robo-advisors will soar by 2,500 percent to $489 billion in 2020 from $18.7 billion in 2015. That's roughly 22 percent of the estimated $2.2 trillion independent registered investment advisors manage today.
Condor Capital, a financial advisory firm in Martinsville, New Jersey, that manages $900 million, created a novel way to compare robo-advisor performance. Condor advisors opened accounts at 13 large robo-advisors and created portfolios with a 60 percent mix of stocks and 40 percent of bonds and have been tracking returns after fees.
Fees for the most popular robo-advisors are lower than the general 1 percent annual fee many human advisors charge.
Robo fees, which are on top of expenses of the underlying investments, typically range from 0.15 percent to 0.35 percent annually. For example, Acorns levies a flat $1 monthly fee for accounts up to $5,000 and then a 0.25 percent annual fee when accounts grow beyond $5,000. Schwab Intelligent Portfolios offers its services for free, though Charles Schwab earns revenue from the underlying portfolios, which are invested in the company's exchange-traded funds, and from cash holdings deposited at Schwab's bank. Wealthfront manages the first $10,000 of a portfolio for free and then charges 0.25 percent annually.
Condor Capital's data shows a wide range of outcomes for similar portfolios at five popular robo-advisors for the first eight months of the year. (See table below.)